Friday, March 30, 2012

Is a $2 discount worth it?

Let me lay out a situation for you. Once per quarter you go shopping at Costco and spend a few hundred dollars. Your friend has a gift card to Costco, and doesn't want it, so that he'll sell it to you for a slight discount. The gift card is for $100 and he wants $98 for it. You don't need to change your behavior at all, and when you use it you'll buy only the things you would have anyway. But the savings is only $2. Do you buy the gift card?

This is the situation I find myself in. Plastic Jungle is providing just such an opportunity: a $100 Costco gift card for $98.

I think it's totally worth it! This is almost indistinguishable from finding two dollars on the ground -- or more accurately, your significant other tells you about how she found two dollars on the ground and deposited them into your bank account so that you didn't actually see the dollars but you know they're there.

The cost is that I'll have to punch my credit card info into a website, open up a letter in a few days, and remember to take the gift card when I go to Costco some time in April. That's virtually zero cost. But right now both my girlfriend and my office mate are standing by the argument that, essentially, two dollars is not a big enough deal to make it worth while.

Every time I hear an argument that "X dollars is not that much" I recount MMM's post about how $10 is, in fact, a lot of money. I don't see why this same concept shouldn't be applied to smaller dollar amounts. If I can get $100 of goods for $98 dollars, and (crucially) if that doesn't cause me to increase my consumption, then I should go for it.

I can't justify leaving $2 on the table. It feels like the same argument as "a trip to work only costs like $4 in gas and maintenance, so why bike?". So I think I'm going to get the gift card.

What do you guys think?

Monday, March 26, 2012

Moderately Mustache March

I feel a bit guilty for not diving into Maximum Mustache March with more gusto. But then I remember that guilt kills forward momentum toward financial independence. My Mustachian actions this month aren't extreme, but they are fundamental.

My biking is going swimmingly. Biking feels like most of what I've been doing for the past two weeks. Last week I felt really tired practically every day, in spite of getting enough sleep. I attribute that to biking to work (and back) twice. Like my frugality muscles, my leg muscles are a little out of shape and could use some toning. But I've been working them and it feels great.

That's basically how Mustachian March is stacking up. I've bought maybe a few more things than I needed — without going crazy, of course. I've let some time go by without blogging about my finances. I still haven't gotten around to craigslisting a bunch of my old stuff. But I'm nailing one really important thing, and that thing is establishing a biking habit.

For me, I consider a bike commute fundamental to embracing Mustachianism. For that reason I feel comfortable letting other chores, or other frugal behaviors, lapse temporarily. Even last year I never would have seen myself as a guy who bikes to work. There are plenty of excuses not to, but really I was comfortable with my status quo. Today I am content but longer comfortable. With wisdom imparted to me by MMM, I've broken out of my comfort zone so I can get closer to the true happiness that financial independence can help achieve.

Alright. Back to Maximum Mustache March. I've bike-commuted four times so far. By my count that's a little over 27 miles. It's not 100, but it's not 0 either. Let me aim at breaking the 40 mile mark for this month — that's another two days of bike-commuting before the week's end (and three times in a week, how's that for breaking my once-a-week minimum goal?).

I still can't help feeling like I missed the boat on March. I really like alliteration though, and there's another M-month coming up soon. You better believe I'm gearing up for Maximum Mustache May.

Tuesday, March 20, 2012


I've got some big news on the mortgage front. After only 11 months of owning our house, we decided that conditions were favorable to refinance our mortgage. This is rather unusual since ordinarily there needs to be a big change in market conditions, interest rates, or the amount of principal outstanding for it to make sense to refinance.

Then why did it make sense for us to refinance? A perfect storm of reasons, actually.

When we were buying our house, we had to decide which mortgage to get. We narrowed our choices down to a 30-year conventional fixed rate at 4.875%, or a so-called 5/5 ARM at somewhere around 3.5%. It's called a 5/5 ARM because the interest rate and payments only update every 5 years, instead of every year after the first 5 years. The interest rate increases are capped to 2% at any transition, and 5% for the lifetime of the loan. So, for example, no matter how high interest rates would be 60 months into the ARM, the maximum the interest rate could go is 5.5%.

I'm inherently untrusting of ARMs because I'm irrationally averse to assuming interest rate risk. It's offered by Pentagon Federal Credit Union, and they pay your non-tax closing costs, which is a pretty sizable benefit. Our monthly payments would be a few hundred dollars lower for the first five years, and our total interest would be lower for 10 years, so there were quite a few advantages to the ARM. I flip-flopped a few times between which one I thought we should go with. In the end we decided based on timing: we only had a few weeks until closing and PenFed couldn't commit to securing the financing on time. My girlfriend had always preferred the ARM.

Now fast forward to January. Interest rates were even lower, the possibility of which I did not even consider when we were buying our house. I think 30-year fixed rates were at 4.25%. That's super low, but it wasn't low enough to justify refinancing after only half a year, mainly because with closing costs it would take years to break even.

But wait! The 5/5 ARM was still an option! They were still offering to pay closing costs, and the initial interest rate was 3.25% (!). There was one big reason I had a change of heart and decided that the ARM was our best option (my girlfriend, like I mentioned, had always liked the ARM better).

Due almost entirely to my conversion to Mustachianism, I had given up my previously held belief that you should hold on to your mortgage for as long as possible. I've been itching to start pre-paying our current mortgage and have the debt snowball kick into gear. But our payments are high enough that it's difficult to find extra money to throw at the mortgage, and it's hard to justify on the grounds that we've got a few big expenditures to plan for, like replacing the roof and waiting for the central air unit to die.

My girlfriend and I had a team meeting where we decided that we wanted to refinance with PenFed. The difference in our principal and interest payments would be like $400/month for the first five years, and we agreed that we would immediately use part of that savings to make extra principal payments. So there's a Mustachian change right there.

It gets better. Last time I wrote about our house, I got some criticism that the house we bought was too expensive for Mustachian sensibilities. I responded that while the criticism was largely justified, I considered this particular house a deal at the price we bought it for. I've been vindicated in that belief. We bought our house for $457k, and it just appraised for $520k. I don't know that we could sell it for quite so much, but what counts is that our Loan To Value (LTV) ratio has skyrocketed.

With our conventional loan we were paying PMI to the tune of $147/month. I'm happy to report that because of the refinance and our favorable appraisal, we have eliminated our PMI payments. Getting rid of PMI was one of my longer term goals — I was aiming at 2015 to be rid of it — so this is a huge win.

But wait, there's more. Our escrow payments will also be lower under the new mortgage. With lower escrow, lower P&I payments, and no more PMI, our mortgage is going to be around $2250, or $550 lower than we're paying now. We'll be paying an extra $100 toward principal starting out, and I'm hoping to up that in a few months as our balance sheet continues to improve. Of course, after five years, our payments will almost certainly increase. Here's where some mischievous Mustachian fun starts. If I understand the 5/5 ARM correctly, P&I payments for years 5 through 10 depend on interest rates and principal outstanding. While I can't do anything about interest rates, I can affect how much extra I pay toward that loan. Every dollar we prepay during this first five years is going to make our future payments lower than they otherwise would be — that's incentive. Not to mention, in 4 years and 11 months, we'll be able to change our monthly payments for the next five years by paying a lump sum toward our mortgage. I actually really like that our payments will change because of the incentives that that provides for paying down our debt early.

Lastly, the refinance is going to have a big positive effect on our cash holdings. Technically I think we're cashing out some equity, which wasn't my intention but it's pretty minor. I think our loan payoff amount was $407k and our new loan will be for about $413k. $2k of that is coming right back to us, so we could turn around and throw it right back at the mortgage, but most likely we'll put it toward getting a new roof. We've also got $2300 coming to us from our other escrow account — our new lender is pre-funding our new escrow account, which I think is why the new loan is a few thousand dollars higher. And, this is pretty cool, we won't have a mortgage payment in April since mortgages are paid in arrears. That's an extra $2800 that I'm really looking forward to.

All in all I feel the refinance was a big win and it far exceeded my expectations. When the dust settles we'll have far more cash on hand than ever before. Some of that will go toward home improvements, but some will go toward paying down debt.

I feel that we are on a more Mustachian footing already.

Saturday, March 17, 2012

Mission accomplished: biking this week

There's so many things going on that I need to tell you guys about. My apologies for not posting lately. I've been on a self-imposed media blackout until I actually manned up and biked to work this week. And I did bike to work this week! It wound up being on Thursday, notwithstanding Mrs. MM's advice to the contrary.

Last weekend I was in California for a conference. It was for my job and that means I'll be getting reimbursed for pretty much all my expenses. I paid for things like hotel, air fare, transportation, and food myself. It's actually been affecting my monthly expenses since February so I'm looking forward to getting reimbursed — it's on the order of $1500.

Last weekend's trip affected more than the time flow of my finances. My sleep schedule was way off on account of the time difference, daylight savings time, and a red-eye back to the east coast. That's my excuse for not biking Monday. Then I was expecting it to thunderstorm on Tuesday. Turns out the weather report was dead wrong, it was beautiful all day, and I lost an awesome opportunity for biking. That sucked.

Then there's Wednesday. There are a few things I've been keeping close to the chest, and one of them is the reason I didn't bike on Wednesday. I'll let the cat out of the bag (so to speak) and just mention that our household has grown by two furry members in the past month. I'll give you all the details later; what you need to know for now is that I agreed to walk the dog on Wednesday, so that was my excuse for not biking.

Biking was awesome. It's spring, it's beautiful out. The sun was shining when I biked to work and when I biked home. I wore shorts instead of sweat pants, a t-shirt instead of multiple layers. My bag was lighter and less bulky because summer clothes are lighter and less bulky than winter clothes. Everything was awesome. It was approximately infinity times better than biking during the winter and I can see now why people get so excited about biking. I'm looking forward to ramping up my bike commutes.

I used an app on my smartphone to record my path with GPS. My Tracks from the good folks at Google measured the time, speed, distance, even elevation of my commute. This is added motivation for me, so that I can track when I get faster and see improvement. The 3.4 miles took 25 minutes which really isn't bad. I think by car it's like 15 minutes but I should time it to make sure. Because of the traffic lights I'm pretty sure I can get my commute time by bike pretty close to my commute time by car.

Stay tuned for so many new happenings on my Mustachian journey.

Sunday, March 4, 2012

My car situation

Last post I wrote about my bike situation. This is the other side of the coin.

The car I drive is a 2008 Landrover LR2. Swanky, I know. It's not mine though. It's actually a former business vehicle that belongs to my girlfriend's dad. Last year, when she and I were starting out, he lent it to us with the understanding that it wasn't for keeps. It was a very generous in-kind transfer that meant we didn't have to worry about getting a car for a while — and actually, it postponed my own car buying decision long enough for me to discover Mustachianism, so that is a huge win right there. Just think, I could have bought a new Ford Fusion on credit. The horror!

The time has almost come to give back the LR2. Since he has no need for another vehicle, what he would ordinarily do is trade it in. But, as you may know, there is a margin between the dealership trade-in price and the for-sale-by-owner price. Her dad doesn't want to deal with the hassle of selling the car himself, but he offered us a deal: we can sell it ourselves, pay him the dealership trade-in value, and pocket the extra money.

This is pretty cool, I think. By nature I'm pretty willing to pay a premium not to deal with hassles, but hey, Mustachianism and all. It's a big long process re-training myself to actually do hard work, because that's where value comes from. So to the extent that having to sell the car myself is considered hard work, this will be good for me.

Because I don't think it's fair to put the driving onus entirely on my girlfriend, I am planning on getting another car. My sister has a 2006 Toyota Yaris that she won't be needing anymore once she moves to Manhattan. My mom bought that car new, as another family car. I had it for a few years in college, then my sister had it for a few years in college. While we were using it we helped out with the car payments as best we could. Now that it's paid off, and my sister doesn't want to pay insurance anymore, I think I'll be able to buy it at a favorable rate. It may be a little more automotive inventory than I need, but it's a known quantity combined with the fact that the Yaris gets up to 40 mpg. With that car I wouldn't be surprised if I went a month between fill-ups.

So where does that leave me? Selling a car, something I've never done: lowering my level of wussypantsitude. A smaller, older, more efficient car: that's Mustachian, though not as good as going without. There is something I can do, though, to up the Mustachian ante.

I need to sell the LR2 before June. My sister doesn't know when she'll have an apartment in the city. Not to fret. I can go carless for a number of weeks between when I sell the LR2 and when I buy the Yaris. By time this happens I'll be used to commuting by bike, and on days I don't want to bike, I'll have to suck it up and take the bus to work. Somehow I think I'll bike a lot more when the alternative is taking the bus rather than driving.

This is usually the way I make a big move. Deciding that something is a great idea isn't enough. I set in motion a sequence of events that will act as a commitment device, forcing me to make the "right" decision when the time comes. When I studied economics, the time inconsistency problem was the most interesting subject I came across. Commitment devices are my bread and butter for big positive changes, and I'm looking forward to seeing how this one turns out.