Don't Forget Maintenance Costs

I used to just look at the purchase price before deciding to buy something.  Over time, I learned that maintenance cost is also an important component in the decision making process.   Sometimes, since maintenance is an ongoing cost, it can be a major factor in determining the financial feasibility of a purchase,

Here are some rules of thumb that I have learned about maintenance costs:

• Everything has a maintenance cost.   From clothing to a house, everything requires periodic cleaning and repair.  We may choose to defer maintenance to reduce costs, but the lack of maintenance with eventually cause an issue.
• Higher complexity = higher maintenance cost.    A motorcycle costs more to maintain than a bike.  A car costs more to maintain than a motorcycle.   A luxury car costs more to maintain than a standard car.
• More stuff = more maintenance cost and effort.  I used to think that owning things was cost efficient.  Having our own pool would save membership fees.  Having a vacation home would save rental costs.  That is true, but then the hidden cost and time of maintenance needs to be considered.   Nowadays, I think it's sometimes more cost efficient to rent when needed and let someone us handle the maintenance.  

Not only does maintenance incur costs, it also takes time to get it done, even if someone else is paid to do the maintenance.  Nowadays, I think less (complexity, cost, stuff) is better.  So that we can spend our time and money on more important things.

For more on The Practice of Personal Finance, check back Wednesdays for a new segment.

This is not financial or maintenance advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Looking for Signs of a Correction

Someday this bull market will take a substantial pause.  Unfortunately, I don't know when that will be.   In the meantime, it is prudent to anticipate this inevitable correction of unknown timing and duration.  Here are some signs I'll be looking for:

• Exuberance - This is when everybody is excited and talking about how well they are doing in the stock market.  I don't see much of this happening yet.
• FOMO investing -  This is when people start investing more in stocks because they're afraid of missing out on what everybody is exuberant about.   It seems to me there is still a lot of cash on the sidelines.
• All stocks advance -  This is when good, as well as bad stocks keep going up.   There is no differentiation as investors put money into index funds/ETFs, driving up the valuation of all stocks.  Not happening yet, since there are a number of stocks still near or at the 52 week lows.

Net,  the current administration has not yet taken any concrete actions that would justify the optimism of the stock market.  If we seen part of all of the three above points in the next few months, I will start expecting a correction to be coming soon.

For more on The Practice of Personal Finance, check back Wednesdays for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Renting Skis Makes Economic Sense for Us

My daughter and I have a season pass at the local ski resort.   We also rent ski equipment instead of purchasing our own.  I didn't do the economic calculation when we first decided, because I didn't know if we would ski more than a couple years.  But now that we've been skiing 3 years, it may be worth considering purchasing skis.

On the internet, current late season sale price for  a ski package (skis, bindings and boots) is about $800 for adults,  and $350 for kids.   Assuming my daughter will need 5 sets of skis before she is an adult, that would be $1750.  

Renting for the past three years has been $100/year for the entire season.    An additional benefit is that we don't need to store or maintain the skis.   Also, our rental package allows us to use skis or snowboards, and we can change our ski length at any time.

As I see it, it's probably a better financial decision to rent, instead of purchase.  First, I don't know how long I or my daughter will be skiing.   Second, we don't need more stuff to store at our house.  Third, I like the flexibility of being able to ski or snowboard.  Finally, $100 seems awfully cheap for a season of use since a day rental is $25.   In past seasons, we would ski about 12 times, which works out to a cost of $8.50 per rental.

This year, we've already skied 15 times and expect to get out 20 time, for an average of $5.00 per rental, which seems like a great deal.  The downside is if we ever try skiing at a resort out west.  Since ski rental could run up to $100/day, owning skis may make sense for multiple vacations to distant ski resorts

For more on Ideas You Can Use, check back every for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Changing Financial Behavior

“You cannot change what you are, only what you do.” ~ Philip Pullman, The Golden Compass

While I am not a particular fan of the movie, I do like this quote by the author.

To me, it means self improvement is about changing behavior, not changing me, i.e. my internal essence.   For example, if I want to improve my financial situation, I should be working on behavior changes that help, and not on changing my personal characteristics.  My epiphany is improvement is not about me, it's about what I do.

So how should I decide the behavior change that is needed?

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” ~ R. Buckminster Fuller

As a engineer, I like this quote.   Making the right behavior change requires a little bit of experimentation.   Try an idea, if it works use it.  If it doesn't, then try another idea.  I try to use ideas that have some reasonable basis for being successful.

For me, I found two simple behavior changes that helped me grow our wealth.  The first was to pay ourselves first, i.e. deposit funds into our savings accounts before paying any other bills.  The second was live below our means, which naturally occurred since we paid ourselves first.   This two behavior changes were much simpler and therefore worked better for me than other approaches, such as detailed budgeting.

What I realize now is that retirement requires further changes in financial behavior.  Now that I've internalized that it's not about me, it will be easier to move forward.

For more on Ideas You Can Use, check back Tuesdays for a new segment.

This is not financial or personal development advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Using Options to Mitigate Risks

With the market at all time highs, I'm getting a bit more cautious.  As I have posted before, I am selling some of my positions with gains.  Another way I am reducing risks is through the using options, such as puts and calls.

• Puts - I like to sell puts on stocks that I'm willing to own, but wouldn't mind owning at a lower price.  If the stock goes up, I get the premium for selling the put.   If the stock falls below the put strike price, I end up buying the stock, but at a lower price.  Occasionally, I will buy a put on a stock that I think will decline significantly.
  
  I'm selling puts on a couple energy stocks that I feel have been beaten down, but have a chance to rebound.
  
• Calls - I like to sell calls on stocks that I own when I feel the market is near a top.  That way if the stock declines, I keep the call premium.  If the stock rises above the call strike price, I end up selling the stock but at a slightly higher price.   Occasionally, I will buy a call to speculate on a stock price spiking upward.
  
  I'm selling calls on my company stock, which I hope will go up and let me sell at a higher price.  But if it doesn't, I will make a small profit on the call.  I purchased calls on couple energy stocks, in case they rise significantly but it appears unlikely now.

Usually, I don't trade puts and calls since the cost of commissions generally offset the profits of small positions.  However, for a short time I qualified for commission free trades, so I can trade a single contract of a low value option and still make a profit even on a small change in price.  This gives me a low cost opportunity to test my option trading ability.

For more on Strategies and Plans, check back Mondays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

RMD Management

RMD stands for "Required Minimum Distribution" from traditional IRAs,  401Ks and other retirement plans (except Roth IRAs) after one turns 70-1/2.

The typical advice is to spend taxable account funds and let retirement accounts continue to grow tax free.  I've been told by several post 70 -1/2 retirees that they should have withdrawn retirement funds earlier to reduce their RMD, contrary to their financial advisors' recommendation.   In their case, they do not need the funds from their retirement accounts, but are forced to make withdrawals, which results in a greater tax burden.

One option we are considering to reduce our RMD is to do Roth conversions in the years prior to receiving Social Security.   During this time, we can keep the marginal tax rate at 15% or less.   Since we still have itemized deductions and non-refundable tax credits, we can further minimize the tax consequences of a conversion.

A second option is to do a Net Unrealized Appreciation (NUA) withdrawal from my company retirement plan after I turn 59 -1/2,  This will also help significantly reduce my RMD requirements.

I plan to use both options over the next few years.

For more on Strategies and Plans Ideas, check back Sundays for a new segment.

This is not financial, retirement or tax advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Fighting Complacency

"Change is the only constant." ~ adage

Success is the enemy of change.  Success and happiness makes it easy to be satisfied, which leads to complacency.  But the reality is complacency may keep me from making changes that may be needed.

One choice is to disrupt complacency, accept changes may be needed despite current satisfaction, and allow a chance for greater success and happiness.

It's a choice worth considering.

For more on New Beginnings, check back Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Posting A Lot Recently

In the first two months of 2017, I've already exceeded the number of posts for 2016.   With another 15 posts, I will exceed the total for 2014 - 2016.  Why the big surge?

No real reason. My short explanation is it's the Forrest Gump running phenomenon, where he started running and just kept doing it.   I just started writing last month, and just kept writing almost everyday.  

I don't know how long I will keep doing this.   Like Forrest, I will probably just stop one day and go back to posting once a  month.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Crunch Time

I have a few employee stock options expiring in a couple weeks.    I've only executed 5% of the options, so I will be actively working to exercise the rest.  Usually, I start exercising the options a year before expiration and complete doing so a month before expiration.   But this year has been different for several reasons:

1. 2015 and 2016 had an unusually large amount of options expiring.  So I generally only exercised options that expired in those years, to reduce the amount of taxes paid.
2. Since my company is a defensive stock, its price has not risen much during the past few years.  So I am waiting as long as I can for the stock price to increase.  This has worked out somewhat, since the stock price has risen slightly in the past month.  But still it is not higher than in early 2015.
3. This year is my last year of having employee stock options.   So I don't have many shares left, meaning that a change in the stock price has less incremental impact on our investment value.

 Although I have several limit orders at higher prices, it is likely I will need to convert to market orders and take whatever price is available at the moment.

Hopefully, there isn't a big drop in the stock price in the next couple weeks.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC

Stock Market is Too Good to Be True

"It's hard to walk away from a winning streak..." ~  Cara Bertoia
"It's hard to defend a danger which you never thought existed." ~ John Christopher

I'm not complaining about recent market rally.  I've been pleasantly surprised by rise in our accounts. However, I'm starting to worry about it's sustainability.  It seems that everyone is expecting the administration to do great things for the economy, despite having done nothing concrete yet.

As I have often found in the past, when things are too good to be true, it probably is.   Our personal accounts are at or nearly at all time highs; 2 out of 3 of our manage accounts are at all time highs; and recent stock purchases are already higher.  I know I'm not this smart.

So instead riding this market to more new highs, it's time for me to do a bit of the opposite and take the opportunity to sell a little.

For more on New Beginnings, check back Sundays for a new segment.

This is not financial or investing advice. Please consult a professional advisor.

Copyright © 2017 Achievement Catalyst, LLC