Friday, November 29, 2013

November investing update

I'm calling these "investing updates" now instead of "net worth updates", because it's more accurate.

My last update was October 6th, so this is very nearly two months in between updates. I don't think this is a big deal. I've never claimed to be as disciplined as Dividend Mantra, and I don't think I'm capable of it either. I'm happy as long as these investment updates don't lapse for more than a few months.

Here are the current totals, along with the differences from my last update:

  • 401k - $26,924.21 ($1,510.63)
  • Lending Club - $2,294.49 (-$79.83)
  • Schwab - $5,147.70 ($2,201.40)
  • I-bonds - $1,401.92 ($400.64)
  • Total - $35,768.32 ($4,032.84)
All in all, a pretty solid two months.

My monthly contribution to my 401k was (!) around $680 per month, so my 401k gains were two months of contributions plus about $150 in capital gains. I have to say, I'm very excited to roll over my 401k. After the dust settles from one or two more pay stubs at my old job, I'm going to roll over my 401k into an IRA, almost certainly with Vanguard. Most likely I'll put it all in VDIGX, Vanguard's dividend growth fund. Before I decide, though, I'm going to ask someone at Vanguard about the managed payout fund. I know it's intended for retirees or people who need income right now, but I'm thinking that there could be some advantage in monthly compounding, rather than the (for example) twice-annual compounding of VIDGX. That and it's more balanced, holding many different funds as a coherent portfolio whose goal is to basically embody the 4% rule. Then again, I might split it between the dividend growth fund and the short-term bond fund, and try to time the market. We'll see. I'm a loose cannon sometimes.

My Lending Club portfolio is performing well compared to my expectations. The drop in value of around $80 reflects a withdrawal of around $100, so I must have collected $20 or so in interest over the past two months. Not too shabby for money I didn't have to work to earn. So far, I have collected $131.72 in interest from notes on Lending Club. I have 114 notes that are issued and current, with 2 that have been fully paid, and zero in any stage of delinquency. I plan on slowly reinvesting or withdrawing the money as my short-term financial situation warrants, and currently I don't plan on adding more money to my Lending Club account. Lately I have been buying notes listed for sale on the trading platform. I look for notes offered at a discount (of around 1-2%) that have fewer than 10 repayments left. I figure there's a good chance it's less risky than originating new notes, and it seems like there are some deals out there.

My Schwab brokerage account is still 100% Corning shares. I own 301.3878 shares, only 300 of which I bought. The other 1.3878 shares are the result of the miracle of dividend reinvestment and Schwab's awesome dividend reinvestment plan (it's free by the way). I have a cost basis of $13.75/share, and I made my last purchase before Corning announced its deal with Samsung to buy out their joint venture, which sent the share price up around 15%.

Finally, my I-bond portfolio is chugging along. I'm still buying $200/month of I-bonds and I plan to continue doing so indefinitely. My first bond won't be available for redemption until April of 2014, but time keeps marching on and now that's less than half a year away. Over time my I-bonds will keep growing and act as my emergency fund of last resort, as a back stop to my checking account and my savings account and my springy debt instruments. You can't beat an emergency fund that's perfectly liquid, backed by the full faith and credit of the US Federal Government, and pegged to the rate of inflation.

I'm very happy with how my investments have been doing. More and more, I'm seeing investing not just as a means to an end, but as an interesting pursuit in and of itself. I'm enjoying finding the right balance of investments that match my particular goals, both short- and long-term.

I think I can appreciate the sentiment of people who enjoy fine wine, or expensive jewelry, or fancy cars. But for me, I'm interested in investments: whether they're mutual funds, consumer debt, partial ownership in high-quality companies, or government bonds. Technically we're all just spending our money on things that we like, right? :)

Saturday, November 23, 2013

I got a new job

I am happy to report that I accepted an offer of employment at another company. Yesterday was my last day at my old job.

As I wrote in September, it has been a while since I've been happy with my job. It has also been a while since I decided that I needed to leave my job. I got an interview on November 1st, an offer of employment the following Monday, and completed some negotiation that week, just in time to give my notice by the weekend. I got a big raise and I'm even shaving half a mile off my already short commute (it will be down to 2.5 miles).

I feel excited, and happy, and relieved. Much of my unhappiness at my current job stems from feeling trapped. I don't have the stash of screw-you money that I need to feel secure in quitting my job when conditions warrant. This is a huge deficiency that I have identified in my life, and in the coming months I will develop (and share with you) a comprehensive plan to remedy the situation.

It's easy for people, especially myself, to think about an emergency fund in abstract terms. Oh, you want six months of living expenses. It's in case you lose your job, or a tree falls on your house. But honestly, the biggest risks I now worry about are: what if my boss or my company expects me to do something unethical? What if I see and raise security lapses that my company is unwilling to remedy? I want to be able to escalate the situation. I want to be able to say, "This needs to change, or you'll need to find another engineer."

I'm also looking forward to being excited about my job again. Months ago I got disillusioned with the work we were doing and office politics. In that time, I had not been putting in my best effort or producing my best work. I've found that apathy is contagious, and so is excitement. When I come home from a day of doing the minimum amount of work to get by, I find I don't have this great urge to be effective in my home life. Conversely, the days I was really productive at work were also the days I found I had the urge to dive into house work and hobbies.

In the short term my finances shouldn't be affected much. I think there will be an extra week in between pay checks in December. Because of my uncertainty around timing of my new pay check, I'm being a little cautious about new investments. I think there are some good opportunities even in this market, but it's better to be safe. I have about $2500 in my checking account, and that will hold me over until my new pay checks start coming in. Once that happens, expect to hear all about the companies I'm buying.

The last big benefit of switching jobs is that I took next week (which happens to be Thanksgiving week) off. That means more time for my hobbies, more time for chores, more time for planning my future, and maybe even more time for blogging. I like to think of my vacations, no matter how short, as a dry run for retirement. I don't know that I'll ever understand the mindset of people who think "Why would I ever retire? What would I do all day?".

I have a lot to look forward to.

Sunday, November 10, 2013

Investing in Magic: the Gathering cards

In early September I mentioned that I had found another opportunity for speculation. It's time I came clean.

I've been buying sealed boxes of Magic: the Gathering cards on eBay, with the plan to hold on them for months or years and then sell them at a profit when they're out of print. For those of you who never encountered this particular strain of nerdiness, Magic is a trading card game (the first, in fact). It has been around for 20 years now. Of note, there exists a robust secondary market for Magic cards.

I have a number of friends who play casually, as I do myself. In addition to casual play, Wizards of the Coast (the company that owns Magic), puts on various tournaments and events. This is where much of the demand for Magic cards comes from. To play in a tournament, your cards can't be faked or proxied. There is also demand from collectors. In addition to the cards themselves, there is some additional value in sealed packs for two reasons: 1) there is a format of play called "drafting" where a group of players make their decks from a limited pool of cards from opening sealed packs, and 2) some sets have very valuable cards in them, and the market adds a premium to packs from those sets.

I started thinking about this idea when I found a few sealed packs I kept around from when I started playing again around 2010. The most recent set at the time was called Zendikar. On a whim I looked up the price of Zendikar packs and noticed that they had greatly appreciated in value. Right now, Zendikar packs are selling for $9-$12 a pack. Magic booster packs usually retail for $4, and buying boxes of them can get you a price of closer to $3/pack. That is a pretty impressive increase in value.

I did some research on recent Magic expansions, and looked at the prices that sealed boxes of booster packs are selling for on eBay. Using conservative assumptions about initial prices, factoring in eBay sellers fees, and using only listings that have sold, I found that the compound annual growth rate (CAGR) averaged between 7% and 15%. This isn't a gold mine by any stretch, but by my estimation there's a reasonable chance to beat the stock market's historical average, and invest in something that's uncorrelated with any other asset class.

Here's a listing of what I bought and when:
NamePurchase priceShippingTotal costPurchase date
Return to Ravnica$89.99$0.00$89.998/11/2013
Dragon's Maze$89.99$0.00$89.998/11/2013
M13 x3$172.58$15.25$187.838/24/2013

Here are the current prices for these products:
Return to Ravnica1$88.00
Dragon's Maze1$80.00

As you can see, I'm not doing too well. That's alright though, because I was planning on holding on to most of these for a few years. You can see where I went wrong with buying a few "From the Vault: Twenty"s too soon after they came out. "From the Vault"s are special collectors edition products with a known set of tournament-legal reprints of various cards. Demand was high for FTV:20 when it came out and since then the price has dropped. The rest of the boxes have basically stayed static, which is what I was expecting. You can also see what kind of a bite fees are going to take.

Anyway, I want to be open and honest about how my alternative investments are going. I am planning on posting updates every few months.

I think it's important to realize that there are a lot of opportunities out there that you could be interested in, if only you open your eyes to them. When you're on secure financial footing you can take advantages of opportunities that come your way. In this case I decided it would be fun and interesting to try a different kind of speculation, one that not many people do. Who knows, maybe I'll lose a bunch of money, or maybe I'll hit the jackpot.

Sunday, October 13, 2013

First retire, then get rich

The title is a reference to this Mr. Money Mustache post.

Last week I discovered an awesome new blog called Saving Money In Your Twenties. Over there Ashley is blogging about a whole bunch of Mustachian things like saving money, brewing beer, cutting her own hair, and yes, leaving the 9-to-5 grind behind. I was inspired to read through her archive, where I learned how to find free parking in many cities while traveling and how to make a cheap and delicious quinoa stir fry, among other things.

Afterwards I was inspired to blog about how cool I think it is that she's quitting her full-time job to move to upstate New York and figure out empirically if she can make a living doing something other than working full-time. I'm not going to steal her thunder: for the juicy details, you should go read her blog. Suffice it to say that she saw an opportunity and she decided to jump on it.

It's unusual that someone quits their job without having another job lined up first. This isn't at all related to criminal law, but I explain this fact by a lack of means, motive, or opportunity. I think many people have sufficient motive to quit their jobs, based on nothing more than the frequency of job-based complaints. Means and opportunity must be the limiting factors. How many of us have a year's worth of expenses saved up (means)? I know I don't.  I'm still lacking enough savings to be able to comfortably quit my job if I wanted. And how many of us have a proximate reason to try to do something else with our lives, which might negatively impact our future employment (opportunity)?

I have given some thought to taking an extended amount of time off of work. Besides a great deal of relaxing, I'd have more time to pursue my hobbies, like home brewing, contributing to the open source community, and practicing security analysis so I can get better at investing. I'd also be able to take on some new hobbies, like writing a book (I've heard publishing on Kindle is pretty straightforward), or maybe a new blog project or two.

A number of these hobbies have a chance of bringing in income. I'm interpreting Mr. Money Mustache's post on "First retire... then get rich" in this light. Sure, you can retire once you have enough money to live off your passive income. That's a given. But you can also temporarily retire once you have enough savings to fund your expenses for a few months. It will mean living off principal, but it will give you an opportunity to do something else with your life years before you could otherwise.

On this note, I'm excited for Ashley, and I'm looking forward to following her journey.

P.S. Yes, I understand MMM's post is addressing a different point, namely how a lot of common retirement advice is "work as long as possible and save as much money as possible because you might run out of money before you die". I think he has an interesting point, and I think it's even more interesting when that point is stretched to its logical conclusion.

Sunday, October 6, 2013

October net worth update

As part of my goal to have six-figures invested, I'm posting periodic updates of my net worth. I missed posting in September, but in the grand scheme of things late September is pretty close to early October, so I don't feel too bad. Besides, the daily fluctuations aren't important. What's important is the focus on continually investing my excess cash so that my dollars are working for me.

My last net worth update was August 25th. Here are the current totals, along with the differences:
  • 401k - $25,413.58 ($1,239.99)
  • Lending Club - $2,374.32 (-$29.32)
  • Schwab - $2,946.30 ($1,450.00)
  • I-bonds - $1001.28 ($401.28)
  • Total - $31,735.48 ($3,061.95)
The increase in my 401k was probably half from new contributions, and half from market increases. Of note I've been changing my contributions to the various mutual funds my plan allows. I think my new contributions are 100% into the utilities fund, and I rebalanced to somewhere around 80% utilities, 10% international, 10% REIT. I chose the funds mostly based on their relatively low (yet still insanely high) expense ratios.

My Lending Club account is showing a loss. This isn't due to someone defaulting on their loan. Instead, I withdrew around $60 of cash because I was scraping together money from my various accounts to buy some stock. Interest is still rolling in, and the notes I have seem pretty solid (no defaults yet), so I feel okay about Lending Club for the short term.

My taxable investment account at Schwab is showing a big increase. I bought another 100 shares of Corning (GLW), this time for $14.85. If you recall, I bought my first 100 shares of Corning back in March for $12.51. Back then I still had student loans. I'm excited about Corning. I love the company and I think that at current prices it could be a great long-term value (I'm talking 10 years or more). I currently have 201.3878 shares, thanks to two dividend reinvestments so far. Fractional dividend reinvestment is a big reason I like Schwab.

For the I-bonds, I'm opting to use the "current value" which includes accrued interest, even though I can't redeem the bonds until a year has passed since the date of issue. I am really happy with my I-bonds. Passing the $1000 mark feels good, and even though the interest rate is a measly 1.18%, my emergency fund is guaranteed not to lose value to inflation. I'd like to keep up my $200/mo contributions for as long as I can.

In the end, my investments increased by over $3k this month. This is really good. I don't think I can keep up this rate of increase, but if I can, I'll be at $100k in less than two years.

I have about $2k in cash. I'd really like to buy another 100 shares of Corning, but I think pragmatism is going to get in my way. I still have a little over $3k in 0% credit card debt that will come due in March 2014. I should also have a short-term liquid emergency fund for if and when I switch jobs. We'll see how the next month goes. Either way I'm feeling pretty good.

Tuesday, September 24, 2013

Saving money is buying freedom

This week I've been a little down. I think it's because of work, at least partly. Over the past few months I've concluded that I want a new job. I don't think the details are germane to this blog; basically I've given up hope that the professional principles I've come to consider important are supportable at my company.

I was a little surprised to conclude that work is making me unhappy. I have a plan, after all. I save money to buy freedom. I have a goal to one day live entirely off passive income, which will give me the freedom to pursue more fulfilling activities than full-time employment. I'm living the plan every day... mostly, but not completely. I think it's that differential, the niggling idea that I'm not quite on course, that's been getting to me.

You see, my consumption habits have been trending upward. This is a feeling I have: it has been a few months since I drilled down into my spending to get a quantitative sense of how I'm doing, so I'm not positive, but it is a real feeling. Come to think of it, this lack of situational awareness is probably another part of the problem. Joint expenses for my girlfriend and I last month were higher than usual by a few hundred dollars. We've been getting take-out more often, maybe once a week. I've been buying lunch maybe once a week or so. I've also bought a few things I don't need, like a Kindle book and an upgrade to our homebrewing setup. None of these is troubling on its own, but taken together and without a clear view of how our overall spending fits into our plan, it paints a darker picture.

I think that even with a bad work situation I could be happy if I felt I was on track. Sure, I've been applying to other jobs, but I haven't put forth a concerted effort or set a goal or timeline for sending out applications. Sure, I've been saving money, but it hasn't been as much as I could be saving and I've been distracted by consumerism. It feels good writing about it since this is the first time I've pulled my situation into a narrative for my own sake: I need to get back on the Mustachianism band wagon for my own happiness.

I don't want to be someone who takes his work with him into his home life. I don't want to depend on my job for life satisfaction. I don't want to need my job, either. I've strayed a bit from the right path, and that implies a greater dependence on my job than I'd prefer. I'm overdue getting back on the path toward Mustachianism.

Mustachianism, I think, is about valuing things like freedom and flexibility over things like consumerism and status symbols. It's about living up to those values and avoiding getting stuck in a rut of bad habits. I'm going to re-commit to my savings goals, not because I want money, but because I want freedom.

Friday, September 6, 2013

Real life is more interesting than video games

I love a good video game. I prefer an RPG or strategy game over a first-person shooter, usually puzzle games or games where resource management is prominent. For around two years I was really into World of Warcraft: in my opinion, still the finest MMO out there.

But I haven't been playing a lot of video games lately. In fact I've hardly played a video game in the past month, maybe longer. I noticed this recently and it has me interested, because as I mentioned, I do really like video games.

I have a theory about why this is. Video games haven't been holding my interest because real life is way more interesting. This seems obvious now that I've typed it out, but it hasn't felt obvious for much of my life. When you're a kid there are a lot of things you can't do, so video games expand your possibilities. Even now that I'm an adult, I can't fly space ships or cast magic spells. I think I'll always be up for a bit of escapism, but for now, here are the things that are really captivating my attention.

I love the pure resource management of allocating my cash. Once I paid off my student loans the cash had to go somewhere, and in fact, it's been going a lot of different somewheres. I have different savings and checking accounts across different banks, each of which has a different login. I have a Treasury Direct account for government bonds. I have a Schwab account for stocks and Lending Club for peer-to-peer notes. And there's Mint that aggregates everything in a slick video game-like interface. Every month there's new cash to play with. After I pay off my credit cards I have to decide where to put the rest of my money. Do I add more to my fledgling emergency fund? How much can I invest? Has my risk tolerance and time horizon changed since last paycheck? Do I feel comfortable locking up cash for at least three years in Lending Club notes, or a year with I-bonds, or do I want to sit on the cash for a little longer? Are there any attractive companies that I really want to own? These are fun questions for me. It's even more compelling because now I have skin in the game. If I mess up in a video game I can restore from a save point, or walk away entirely. With my money I have to live with my mistakes and learn from them.

Then there's my mystery speculating opportunity I haven't told you about yet. I'm still not ready, but I'll spill a little more: I'm buying things up on eBay, and planning to sit on them and sell them in a few years for a profit. This activity of trawling eBay for "deals" is highly addictive. I did something similar, albeit quite different, when I was playing World of Warcraft (WoW). WoW has an in-game auction house (for in-game currency, not real money), and there are iPhone and Android apps to access it. I spent a lot of time, and had a lot of fun, and made a lot of (fake) money by buying and selling different commodities on the market. I realized after a while that real value wasn't in farming a particular good and selling it: the value was identifying significant mismatches between supply and demand and capitalizing on them. I would pick a few goods and learn about them, like what materials go into making them, and what materials can they be made into. This was to try to identify goods with high (or at least relatively stable) demand. Then I made it my job to buy low and sell high, and to always try to keep the market clearing. Let me give you an example. In WoW's Mists of Pandaria expansion, they added cooking professions and different types of food that you needed to level up your cooking. Food was farmed by killing different mobs or fishing in different areas. I noticed that one type of meat, I think it was called "raw crocolisk belly" or something like that, was always scarce on the auction house. As any student of economics should be able to tell you, this means the price is too low! I farmed some, but more importantly, I bought all I could and re-listed it at a much higher price. I made a killing by ensuring a steady supply of this in-game commodity.

As you can probably surmise from my fevered retelling of my exploits, I enjoyed trading on the WoW auction house a whole lot (and, I should mention, I made a ton of gold doing it). I'm happy that I've found a somewhat similar opportunity, this time for real life. My game plan is to buy a particular product while supply is high, and then sell it years later at a tidy profit when the supply is low. I promise I'll fill you in soon.

I've been getting back into fundamental analysis of stocks. This type of analysis is the hardest puzzle game I can think of. It's also much more satisfying when the end result is an ever-growing stash of cash and investments, instead of completing a contrived puzzle or getting some empty achievement. Dividend Mantra has me jealous, as usual, of all the awesome companies he's part owner of, some of which I hadn't even heard of before he blogged about them. From watching him over the past year or two, I have come to understand how much of a long game it is, playing with these investments. This isn't a game of instant gratification. It's taken him years, but he's built his own little mutual fund that's covering somewhere around 15% of his expenses. It looks incredibly satisfying. Not least of all, he knows and loves every company he owns — he hand-picked them! A market crash here or an economic downturn there isn't going to harm him, and it's because of his own initiative and ingenuity. Contrast that with what happens in every MMO: a new expansion comes out, your gear is worthless, you spend countless hours getting back to where you were, so you can complete yet another dungeon, so you can have it taken away from you again. All for the thrill of the chase. It seems much more satisfying to me both to enjoy the chase, and to enjoy where the chase is taking me.

Sunday, August 25, 2013

August net worth update

August has been another month of Mustachianism on relative autopilot. Let's update my net worth of income-producing assets.

Here are the totals, along with the difference from my last update on July 27th:
  • 401k - $24,173.59 (-$339.00)
  • Lending Club - $2,403.64 ($317.11)
  • Schwab - $1,496.30 (-$48.33)
  • I-bonds - $600 ($200)
  • Total - $28,673.53 ($129.77)
A small increase over last month's value. My 401k contributions and my I-bond purchases remain unchanged. I contributed $300 to Lending Club. The decrease in wealth in my 401k and Schwab account is due to market fickleness — no big deal.

With the rest of my income I've been saving up cash, retiring credit card debt, and beginning to "invest" in a speculative asset class which I'm not ready to share with you just yet. I can almost guarantee you'll hate it. Before I write about it, I want a little more confidence that I'm not throwing money away.

I am planning on dialing down contributions to Lending Club in the short term. My desire for liquidity has increased over the past two months; and I have been trying to buy higher-interest notes for which competition is fierce. I don't have a problem investing in B notes with interest rates from 9 to 13%, but for now that's not the most attractive opportunity for my cash. I'll let the money I have in Lending Club compound for a month or two while I reevaluate.

This month I remembered that I have around $3k of Series E savings bonds, and I think they belong in my invested net worth calculations. I haven't converted them from paper to electronic yet, so when I do, I'll start reporting on them.

Wednesday, August 14, 2013

How I almost lost $480 speculating in Bitcoins

Since I paid off my student loans in February, I admit I've been over-eager to build my stash. I didn't spend a few months building up my emergency fund. I immediately started investing in Lending Club notes and I-bonds. I also paid off some 0% credit card debt that's not due until next March, to improve my credit score in anticipation of applying for a Home Equity Line of Credit (HELOC).

There's another speculative investment I dallied in that I haven't mentioned on this blog: speculating in Bitcoins! I've waited long enough. It's time to come clean.

Even before I paid off my loans I've been thinking of what to do with the money I'll save. Even at my relatively unMustachian savings rate of ~30%, I regularly save upwards of $1300 per month (roughly; I haven't looked closely at the numbers recently). I know that I'm not the kind of person who can be a totally passive investor, patiently dollar-cost average into a nice index fund over a period of decades. I know that's the recipe for success for over 99% of people, most likely including myself. But I know myself, and I know my flaws, and I'm always going to have the urge to tinker and optimize and analyze and try to seize opportunities. I definitely do not want these traits to manifest as constantly turning over my stock portfolio: racking up trading fees, buying high and selling low. (As an example: last year I made three ~$300 trades in JCP and MSO, only to sell them within a year at a slight loss. I consider that a cheap lesson about what not to do in the stock market.)

With this in mind, I try to play to my strengths and work around my weaknesses. I want to keep a relatively small part of my stash in speculative investments that will take the lion's share of my time and attention, so that the majority of my wealth can be safe to do the passive compounding thing.

This is where I tell you about Bitcoins. The Bitcoin Wikipedia article is pretty good at giving an overview, but for this discussion Bitcoins are just a commodity to be traded. The key features are very low transaction costs; no need to physically accept, store, or deliver any product; and (at the time) very large price swings, often 10% in a single day. The theory is that by providing liquidity to the market, I could take advantage of large and consistent price swings by buying low and selling high.

The biggest difficulty was finding and obtaining a trading account. When I was looking in April 2013, most Bitcoin exchanges were based outside of the US, and those were the biggest exchanges. They could take upwards of two weeks to get a bank account verified and funds transferred before you could start trading. I had my solution when my friend and co-worker who was also investigating opportunities in Bitcoins showed me to bitfloor, a US-based exchange. Bitfloor even allowed transfers in from ING Direct (now CapitalOne 360).

In mid-April I transferred $400 from ING into my bitfloor account, and bought a single bitcoin from that same friend for $80. The bitcoin transferred to my account in an hour; the cash took around a week. My trading strategy was the following: place many small orders around the current bitcoin price, in small increments. As the market price rose (or fell) and my orders got executed, place additional buy or sell orders surrounding the market price. For example, let's say the market price of a bitcoin was $80. I'd offer to buy at $79, $78, and $77; and I'd offer to sell at $81, $82, $83. To make things simple I used increments of $10, and in practice I often had a dozen or two orders on the books. Bitfloor incentivized traders like myself to add liquidity to the market by providing a rebate (negative commission) if an order was on the books before it got executed, i.e. if it wasn't a market order.

This was the simplest possible strategy I could think of to profit from the volatility of the bitcoin price. I was placing bids manually so I needed something straightforward. The liquidity rebate meant I didn't have to worry about playing a losing game with being charged commissions. The decision to use fixed-dollar trades meant that when I bought at a lower price, I'd buy relatively more bitcoins; then when I sold at a higher price, I sold fewer bitcoins to equal the same amount of money. Using $10 as the trade amount meant I always knew how many purchases I had cash for. The way I saw it, as long as the market price of bitcoins kept vacillating, I was basically guaranteed to make money.

That was my strategy, and it worked beautifully... for a day. Literally a single day. On April 17th my cash cleared into my bitfloor account and I started trading. I was doing pretty well, up about $30 from making dozens of trades. That same day, bitfloor announced it would be shutting down operations due to "circumstances outside of [their] control". I finished the day with $509.27 in my account, meaning I made $29.27 in a day of trading, or about 6% in a single day. At that point my cash was locked up and I basically didn't know if I would see my money or not.

I'm pretty sure that over time I would have been able to improve my methods and deploy more of my cash — I didn't have most of my money tied up in trades that first day — and so I think I could have improved my rate of return. The thought of earning 10% per day is pretty awesome, and at that rate money compounds pretty quickly. Of course, since then the market has settled down and we're not seeing anywhere near the 10% swings we used to (though I haven't kept close tabs on bitcoins). On the other hand, I didn't fully account for risk of loss associated with the trading platform imploding.

Just this week I got my money back to the tune of $504.27: a $5 transfer fee was assessed. I'm pretty happy with this outcome as I could very well have lost my $480. I learned a lesson about what else to look out for with speculative investments, and I gained some valuable experience. I am planning on always keeping my eyes out for speculative investments in the future. It's something I enjoy, there is potential for outsized returns, and it's a liberty I have now that I'm (mostly) debt free.

I'll let you know what other kinds of speculative shenanigans I get myself into in the future.

Saturday, July 27, 2013

July net worth update

It's easier to call these "net worth updates" even though I only really care about income-producing assets. I have a goal to have $100k in income-producing assets as soon as possible. I'm making progress toward my goal mostly by relying on the Mustachian habits I've already cultivated.

After paying off my student loans I've found that spending money is a bit easier. For example, I spent $55 on 5 video games during the Steam summer sale. I even bought a MacBook Air last month, after not having a laptop for four years. Even so I've been accumulating cash and deploying it to productive uses: debt paydown and Lending Club notes. I've found it's possible to buy nice things you want and still live well below your means.

Here are the totals, along with the difference from my last update (June 16th):

  • 401k - $24,512.59 (+$1,751.79)
  • Lending Club - $2,086.53 (+522.23)
  • Schwab - $1,544.63 (+$56.62)
  • I-bonds - $400 (no change)
  • Total - $28,543.76 (+$2,326.65)
My 401k has been doing well because of the recent strength in the markets. Around $1000 of that gain was new contributions (plus employer match). The rest was appreciation.

I added $500 to Lending Club, and the other $22.23 was interest.

My Schwab account still has 100 shares of Corning (GLW). Once I have around $2k in extra cash I plan on finding another company to invest in. Until then my Schwab account value will vary according to Corning's stock price.

I didn't buy more I-bonds last month. This was because my Treasury Direct account was locked, so my automatic purchase didn't go through. I'm going to continue investing in I-bonds as an emergency fund, even though the interest rate is low and getting lower. It's a stable store of value that can't decrease in real terms, and the fact that it's not in my savings account means I'll respect it as a rainy day fund.

The over $2k increase from last month is an awesome number, considering I didn't invest much of my after-tax income at all. I used a lot of cash to pay off my credit cards: I want to improve my credit score so I can qualify for a Home Equity Line of Credit (HELOC) and then hopefully never use my credit again. I paid off my MacBook purchase as soon as it hit my card (~$1,400), and got my 0% card down to around a $3,500 balance — take that, credit utilization!

A few months ago I lent $5k to a family member as a sort of cash-flow loan. When I got paid back, I used it on my credit cards. This means that, while I'm not building my 'stash as quickly as I could be, I don't have to worry as much about when the 0% offer will run out next March. Buying productive assets and paying down debt are both really fantastic options.

What have I been up to?

I haven't been posting as much as I'd like, but I've still been busy. I've just been busy with non-financial endeavors. It's pretty great how frugal habits compound over time, to the point where even when I'm not actively trying, I'm still maintaining a high savings rate.

I'm trying to approach the early retirement lifestyle before I'm actually retired. I'm cultivating hobbies like home brewing and open source programming. I'm reading more. I spend more time outside, going on long walks with the dogs and my girlfriend.

Yup, life is pretty good. And I'm still on track to meet my financial goals. I think I could be moving toward them more quickly, but I'm happy spending more time on other pursuits. I know that the pendulum will swing the other way at some point in the future. Then I'll spend my time learning about value investing, home energy efficiency, improving my frugality.

Everything in its own time.

Sunday, June 23, 2013

Lending Club update

I think this is my first official Lending Club update. Here's where I stand:

Don't be alarmed by the -57% net annualized return (NAR). When I started with Lending Club I purchased 8 defaulted notes on the secondary market for pennies on the dollar. I think I spent around $22 in all. Since then, all have been charged off. That's what I get for being trigger happy at new opportunities. I bought around $300 worth of debt at 90-95% discounts, when in reality the discount needed to be 98%+. This is a good lesson, which I take as: don't invest in things you don't (fully) understand. I should mention that at the beginning I was looking at over -90% NAR, and that has crept up over the past few months as interest has rolled in.

I've made $31.84 so far in interest. I don't have many notes — only 64 so far — but that's enough that every day or two I have another few dollars in my account.

My investment strategy is as follows:

I transfer cash into my account when I decide it's time to invest. This is usually in amounts of $100 to $500. I'm taking things slow while I'm liquidity-constrained in the early days of building my stash. Most recently, $300 cleared on June 20th, and I've been working to get it fully invested. (That explains the $167.59 in available cash and $175 in in-funding notes.)

When I have cash to invest, I need to choose which notes to fund. Since I don't have much cash I can afford to be relatively picky. The filters I use are: 36-month term, and home ownership of "Mortgage" or "Own". I use home ownership as a proxy for lifestyle stability though I admit this is a bit of a stretch.

I only fund notes from people who have answered a few questions, and I have to like the answers. Not many people ask questions, and notes get funded quickly nowadays, so I have two strategies.

My first strategy is to look at notes that will be funded soon. I sort by "% Funded" (so soon-to-be-fully-funded notes are at the top) and look at each loan until I find answered questions. If I get lucky and find someone who has answered some questions, I see if their answers sound thoughtful and I fund the loan.

My second strategy is to ask my own questions. For this I sort by "% Funded" again, but in the other direction (so the loans at the top are far away from being fully funded). Then I go through each and ask a bunch of questions — they're in a list with a radio selector, and you have to submit each separately. My personal favorite is "Please explain the reason why you carry a large revolving credit balance." I often use the questions asking for a detailed breakdown of monthly expenses, credit card payments per month, and what loans they will pay off.

I usually have the patience to go through one or two pages of notes at a time (the default is 15 loans per page). After firing off questions, it's time to play the waiting game. Lending Club emails me when questions are answered. Then I read through the answers and decide if I want to fund the loan.

I have had one loan that became late. Since then the borrower has paid the loan so that it's current. I'm very happy with this turn of events. Also of note, my very first payment on a note was for more than the minimum — good for that guy!

I've really enjoyed reading about what people want to do with their loans. Many of them are for refinancing credit card and other high-interest debt. Sometimes they have names like "paying off credit cards" or even "Final Credit Card!!", which makes me feel good.

I've been very happy with Lending Club so far. I especially like that, now that I've been doing it for more than a month and I have a few dozen notes, I can see compounding happen on a daily basis. This is how wealth is built: one day at a time.

Sunday, June 16, 2013

Goal: six figures invested

I've been kind of antsy since I paid off my student loans in February. During the 14 months of my aggressive debt payoff, I knew exactly where all of my money should be going. This hasn't been true over the past 4 months. I've still been saving pretty aggressively, investing in Lending Club, and otherwise trying to keep out of trouble. But without a firm goal in mind it's easier to spend money freely.

I make the best decisions when the right two choices are juxtaposed against each other. Here's an example: should I buy this game on Steam called Prison Architect? It looks fun. At $29.99 I can definitely afford it. Without a long-term financial goal (or a budget), I'd frame the choice as: do I buy this computer game, or do I not buy it?

Now imagine I have an investing goal. I want to have a combined portfolio of $100k+ as soon as possible. Then my decision gets framed as: do I buy this computer game, or do I want to be $30 closer to my goal? It's not that buying things is bad or the wrong decision. It's that you need to know your priorities before you can make a good decision.

I've wanted a new financial goal for a while. I shied away from a specific number at first because anything less than enough money to be financially independent is going to be arbitrary. But now, months after I paid off my student loans, arbitrariness seems a small price to pay for a specific financial goal. I've read that the first $100,000 is hardest, and that seems to ring true, so that will be my goal. Also I got a little envious of Dividend Mantra when he crossed the $100k mark in March.

I haven't decided on a timeline yet, and I haven't nailed down the details (actually that's what this blog post is for). Let's lay it out.

Goal: To have $100,000 or more in income-producing assets

"Income-producing assets" means my car and my house don't count. I'm not going to count money in savings or checking accounts either, nor cash in my brokerage account, nor my HSA. I am going to count my I-bonds, my taxable brokerage account, my 401k, and Lending Club.

Here are the totals so far:

  • 401k - $22,760.80
  • Lending Club - $1,564.30
  • Schwab - $1,492.01
  • I-bonds - $400.00
  • Total - $26,217.11
Not too bad. Most of my stash is my 401k, built with three years of the minimum contributions I needed to get the full employer match.

Of note, I turned off my automatic $500/mo contribution to Lending Club. I'm going to be transferring money manually from now on. The cash takes almost a week to transfer, and I felt uneasy about having so much money automatically go into limbo each month. I still have $200/mo automatically buying I-bonds; the bonds show up in my account the same day that the ACH transfer happens, so that's pretty cool.

I'm kind of low on cash. Last month I lent $5000 to a family member who was having an issue with cash flow. She just got her commission check, so I'll probably have my money back by next weekend. When that comes in I'm going to spend most of it paying down my 0% credit cards. I want to buff up my credit score one last time, so we can get a Home Equity Line of Credit (HELOC) as a joint emergency fund / means of financing large home improvement purchases. Beyond that, I can't wait to buy some more notes on Lending Club.

Thursday, June 6, 2013

An excuse to bike

I finally biked to work this year. And it was great.

My first time was last Tuesday, the day after Memorial Day. My strategy was "don't think about it, just do it" which was effective. I'm prone to over-thinking, which is my most common cause of under-acting. I would normally worry about finding the bike pump, inflating the tires, laying out my bike clothes and my work clothes, cleaning out my messenger bag, and getting ready that morning. That anxiety is what kept me from biking through March and April. But the week before Memorial Day was my vacation, and I returned refreshed and with a clear head.

I had forgotten how easy it is. Last year I built the biking habit so that when I started again this year it felt like second nature. I'm making a conscious effort to wake up earlier and take my time while biking — what's the rush? after all — and that has reduced my stress level. Slow down and smell the roses, you know? When the weather is nice (or even too hot) it's a significantly more enjoyable experience than driving.

I biked twice the week of Memorial Day, and three times so far this week. My game plan going forward is basically "fair-weather biking": I'll plan on biking if it's not forecasted to rain or thunderstorm. No reason to overdose on badassity too soon; no reason to give myself an excuse to interrupt my biking habit.

I want to take some time to talk about excuses. I've made up a lot of excuses not to bike over the past year: it's raining, I can't find the bike pump, the seat is too low even on its highest setting, it's too cold, it's too hot, I'm tired, I'm late for work, I want to be early for work... I'm sure I could keep going. These reasons are incidental.

An excuse is just an incidental reason. Armed with this fact, I played a mind game on myself on the first day I biked to work. I found an excuse to bike (actually a few of them):
  • I have to bike because my car is overdue for maintenance
  • I don't want to drive because I had to park the next street over because they're paving the road in front of my house, and I don't feel like walking
  • I have to bike because I have to get back in shape
All of these are true. None of them are the underlying reason why I biked to work. I biked because I decided I was going to and then I followed through. Armed with these excuses, it was easier to keep myself from backing down. This is precisely the opposite process of our brains using excuses to keep us from doing the things we know we should be doing.

Excuses have a bad connotation, but they're just incidental reasons. I'm going to try finding excuses to do more things I've been putting off. For example, I have to make a vet appointment for my cat because otherwise she'll stop loving me. And I had to write this blog post because otherwise my adoring readers would forget all about me and I'd die alone and abandoned. See, excuses don't even have to be feasible. They just have to spur you to action.

Saturday, May 4, 2013

Finally, a REAL emergency fund: Series I savings bonds

I'm incredibly, overly excited about being the proud owner of my very first I Bond. I Bonds are probably my favorite financial instrument. I'm going to use them as the vast majority of my emergency fund, and now I'm going to tell you all about it.

I haven't had a proper emergency fund in years. When I started aggressively paying down my student loan debt in December 2011, I threw all the cash I had at my loans. Before that I don't recall having an explicit emergency fund, just a few thousand dollars in savings, and probably less than that once we bought our house. I've felt bad about it, and I've written about other things that sort of act like an emergency fund without being one, like debt paydown and lines of credit.

But a line of credit isn't a real emergency fund. Neither is a credit card, or relying on a wealthy relative. And everyone needs an emergency fund.

I have a savings account with $1200.66 in it. I want its balance to stay right at $2000. (I'll describe how I calculated this number later on.) Every month I'm transferring $200 into it automatically. But that savings account isn't my real emergency fund. It's just my temporary one.

My real emergency fund is all of my I Bonds. Currently that's just one: a $200 bond that I bought at the end of April. Interest accrues on the first of every month, and I Bonds bought in a month count as being bought on the first of the month — so by buying at the month's end and redeeming at the month's beginning, you're basically getting a month of free interest.

I have an automatic I Bond purchase plan for $200 a month. The bond showed up in my Treasury Direct account on the same day the ACH transfer happened, which is pretty awesome since with every transaction I'm familiar with there's a lag of a few days. The interest rate on that one is 1.76%, which is entirely the inflation component. It sure beats 0.75% on my savings account.

I Bonds can't be redeemed until a year after their purchase date, and if you redeem them before 5 years you lose the last three months of interest. Those are basically the only downsides. Oh, and you can only buy $10k per year (per individual). But that's it, everything else is a positive.

Since any I Bond that I purchase now needs to "cook" for a year until I can redeem it, I can't just dump my temporary emergency fund into I Bonds all at once. That explains why I'm buying a small amount of I Bonds every month. This way I'll build up a pipeline of emergency fund money in I Bonds that will become available over time, so instead of having my savings eaten up by inflation I'll have my purchasing power maintained even across long time horizons.

Eventually I'd like to be buying more than $200/mo of I Bonds. Averaging $833.33/mo will put me at the $10k/yr limit. That's a good goal to shoot for but I doubt I'll have enough assets any time soon to feel comfortable committing that much to pure emergency fund savings. Maybe I'll keep my automatic purchases the same and invest one-off amounts to build my I Bond emergency fund faster.

Okay, wait a second: how did I decide that $2000 is enough for an emergency fund?

Good question! The question of "how much money should I have in my emergency fund?" comes up all the time, especially kicking around personal finance circles on the internet. Most recently I saw this topic broached over at Yay, Goodies. I haven't weighed in on it yet, and that ends today.

The traditional advice about emergency funds is one of: 3-6 months of income, 3-6 months of expenses, 6-12 months of income, or 6-12 months of expenses; I honestly forget which is most common, assuming I ever knew. I think that any one of these is good advice... that is, if you have little knowledge of or little interest in personal finance. As a Level One Mustachian or higher, you can do better than this advice.

The optimal size of your emergency fund depends entirely on your circumstances, and you should decide it for yourself. The most important question is: what will it take for you to sleep easily at night? If you need $50k in a savings account to feel comfortable, and you decide that the money you're leaving on the table is worth your peace of mind; then more power to you, you're doing awesome, and don't listen to anyone who tries to tell you otherwise.

I think it's perfectly reasonable to get by with much less of an emergency fund than conventional wisdom suggests. I'm going to briefly describe the methodology I used to decide on my $2000 emergency fund figure. I'll flesh it out in a future post, since this post is long enough already.

First I made a list of catastrophically awful things that could happen. For me this was: unexpected job loss (for both me and my girlfriend), car accident that would total either one of our vehicles, medical emergency (either acute or chronic), destruction of our primary residence, and a medical emergency involving our pets (two dogs and a cat).

For each of these, I came up with a narrative of the worst (or most expensive) thing that could happen. Job loss is an easy example: if you lose your job, you lose your income. If my car were totaled (maybe if a tree falls on it), I'd have an outstanding car loan, and I'd need an alternate form of transportation.

Then, flesh out the scenario with how you would adapt. If I lost my job, we would cut our expenses as much as possible. Since we have a budget, I can see that trimming $300-400 per month would be easy and automatic (mostly ongoing home improvements and furnishings). Further cuts would probably be possible. Since my girlfriend also works, we would be burning through savings at probably $200-400 per month.

Make a table of these outcomes. I chose to have two columns which I labeled "risky" and "very safe", and came up with dollar figures for each scenario. "Risky" means "what is the minimum possible I would need to barely scrape by?". "Very safe" means "how much would I need to be totally shielded from essentially all risk?".

Once you have the table, you need to decide how to aggregate those values. You can total them up, or pick the biggest value in the "very safe" column, or really whatever aggregation scheme you want. I chose to add together the highest two values, on the theory that losing my job and having a tree fall on my car in the same month is as close to a worst-case scenario as I want to imagine. That gave me values of $2200 in the "risky" column and $5400 in the "very safe" column. From there I basically eye-balled it and decided that $2000 and a $5000 personal line of credit is a big enough safety margin for me.

That's the basics I used to decide on the size of my emergency fund. I'll write it up more completely the next chance I get. As for the emergency fund itself, in two years time I should have my entire emergency fund in readily-accessible I Bonds. Until then I'm stuck with my savings account.

Tuesday, April 30, 2013

Check out what a wuss I am

I've spent the past month with my mind on business and investments, and not more important things like frugality and biking. This month was Anti-Automobile April so I've also had my mind on how much I've been driving. I've commuted to work by car every week day. I haven't biked at all. I've walked to the grocery store three times.

Where there's a week day, 6.6 of the car miles are commuting. I drove 202.8 miles this month, of which 146.2 were from my commute. I walked 4.6 miles, not counting walking the dogs. I biked zero miles.

Day Car Walk Comments
1 6.6 1.4 walk to grocery
2 6.6 0
3 6.6 0
4 6.6 0
5 6.6 0
6 0 0
7 0 0
8 6.6 0
9 12.8 1.4 errands, walk to grocery
10 11.6 0 library
11 24.6 0dinner out
12 6.6 0 0
13 14 0 friends house to hang out
14 0 0 0
15 6.6 0 0
16 6.6 0 0
17 6.6 0 0
18 6.6 0 0
19 6.6 0 car pooled with our friends for dinner out
20 0 0 0
21 0 0 0
22 6.6 0 0
23 12.8 0 0
24 6.6 0.4 saved a trip by staying late at work and walking to a local meet-up
25 6.6 0 0
26 6.6 0 0
27 8.2 1.4 friends house to hang out; walk to grocery
28 0 0
29 6.60
30 6.6 0
202.8 4.6 Total

If you've ridden your bike even once this month, you did better than me. I want to draw attention to this for two reasons.

First, showing up is terribly important. To be dramatic: "History is made by those who show up." Showing up is also most of the work (especially for me), and I'd say it's more important than finishing. As soon as I get on my bike, getting to and from work is a breeze. It's fun and I enjoy it. It's deciding to get on my bike as soon as I get out of bed, and then following through, that's the difficult part.

Second, relative status is at least as important as absolute status. I am tied for last place in the category of "distance biked" over the past month, no matter who you compare me with. If you even made one trip to the grocery store on your bike this month, and your friends don't even own a bike, then guess what: you beat their socks off. You are awesome and you should be proud. To reach the top 5%, you must simply kick the ass of the other 95%.  I wish I could find a statistic for average distance biked by an American over any period of time, but I bet it's not too high.

I obviously must change my habits. There are two things blocking me from a frictionless decision-making process of waking up in the morning to getting on my bike and starting off to work. First, I need to get my bike ready, which entails pumping the tires and making sure the handlebar is the right height. Second, I need to track down my bike clothes, work clothes, and a towel and soap (for showering at work); then lay them out before I go to bed at night. That way I can roll out of bed and be ready without thinking.

How did everyone else do on Anti-Automobile April?

Wednesday, April 10, 2013

Anti-Automobile April

Happy Anti-Automobile April everyone. Mr. Money Mustache didn't punch me in the face for my lack of bike riding, but he may as well have.

The goal of this Anti-Automobile April is merely "to make yourself AWARE of when you are using your car, and when you are not." I'm going to be as public about it as is feasible, since public shaming is a great thing.

Here's my chart so far:
Day Car Walk Comments
1 6.6 1.4 commute, walk to grocery
2 6.6 0 commute
3 6.6 0 commute
4 6.6 0 commute
5 6.6 0 commute
6 0 0
7 0 0
8 6.6 0 commute
9 12.8 1.4 commute + errands, walk to grocery
10 11.6 0 commute + library

The first thing to notice is the lack of a "Bike" column. I don't need one yet because I haven't biked this month yet, or even this year. Yes, this is a problem. Yes, I plan on addressing this problem in April.

My place of business is 6.6 miles from my house. Caveats for the above list include: I take the dogs for walks but I'm not counting that because it's not really a place I'm going or errand I'm running; and I'm only counting traveling in my car and not my girlfriend's car, just because.

That's 64 miles of driving in only ten days. This could be a lot worse if I worked farther away from where I live. It still feels like a lot of driving.

Here's looking forward to kickstarting my biking habit and adding another column to my list.

Sunday, March 31, 2013

Investing in energy-efficient lighting

tl;dr I just saved a bunch of money by replacing some light bulbs with energy-efficient alternatives. Once you're debt free, your most profitable investments may be in energy efficiency upgrades.

Ever since I paid off my student loans, I can be a bit more relaxed with money. For an upstanding Mustachian that doesn't mean daily or even weekly lattes at Starbucks. It means that, now that I've exhausted my 6.8% guaranteed-return investment opportunity (i.e. student loan debt payoff), I have to search for other attractive investment opportunities.

I want to fill you in on one such "investment" that we made: replacing a bunch of light bulbs and fixtures with energy-efficient compact fluorescent bulbs (CFLs). I did not do a cost-benefit analysis before making the plunge; well, nothing besides thinking "gee, I bet I can save money on electricity with CFLs since that feels like the prevailing wisdom nowadays". I want to do that cost-benefit analysis now to see how good or bad an investment we made, and to give ball-park figures for your own energy efficiency improvements.

We made two changes: first, we replaced six overhead light fixtures in the basement and hallways; second, we replaced the decorative globe incandescent bulbs in both our upstairs bathrooms with CFL equivalents.

Since we moved into our house, I have hated the light fixtures in the basement. They were these brass-colored fixtures whose covers were in various stages of falling apart. Maybe they looked good when they were original, but they certainly didn't look good when we arrived. (I wish I had a picture to show but I'm not sure I took one. I'll post one if I do dig one up.) They took these bulbs, 25-watt globe with candelabra base. Six for the large fixtures, three for the small fixtures. I'm intimately familiar with this type of bulb because of the number of times I've had to replace them. I must have replaced dozens upon dozens of these bulbs in the less-than-two years we've lived in our house. I'm not sure why, but after replacing all the dead bulbs, the first burn out would occur within a week or two. Then in the next month or two we'd lose another one or two (this is per-fixture, by the way). The net effect was 1) most of the time half our bulbs were burnt out, 2) way too much time spent replacing bulbs, and 3) way too much money spent replacing bulbs.

I forget what the last straw was, but in late January I went to Lowe's and bought new fixtures. We decided on a chrome finish and frosted glass (see pictures). For three large fixtures and three small fixtures, the total cost was $224.78. Each came with a single CFL that retails at somewhere between $5 and $7 (I haven't had to replace any in the two months we've had these fixtures installed).

The old fixtures used 27 incandescent candelabra bulbs at once. I'd guess that on average half were burnt out, so let's say there were 14 on when the lights were on. That's 350 watts for the old fixtures. The new bulbs use 27 watts each, but there are only 6 of them, so that's 162 watts. If I had to guess at how much we use those lights, I'd say 4 hours per week night and 10 hours per weekend day, for about 160 hours of lighting per month. That means about 30 kWh saved per month, at a cost of around $3 per month. Even if I'm way over-estimating our lighting usage, half that savings is $1.50 per month which is pretty good.

I'll admit these are very rough estimates. But I think they clearly demonstrate that investing in energy efficiency offers great returns. Investing $250 at a safe withdrawal rate of 3% will give you around 62 cents a month for the rest of your life. Buying and installing new light fixtures in my basement cost less than $250, and is saving us somewhere north of $1.50 per month

It would have been even better if I didn't totally hate my basement light fixtures, and I could have just replaced incandescent bulbs with CFLs. As luck would have it, that's exactly what we did in our upstairs bathrooms.

Between the two upstairs bathrooms there are 18 light bulb fixtures. Here are the CFL replacements: G25 globe with medium base. They say they're 40-watt replacements but all the bulbs we had were 60-watt bulbs so that's an even bigger energy savings. At $20 per 3 bulbs, our initial outlay was $120. Here's the equivalent incandescent bulb at Home Depot, at $6.42 for 4 bulbs, or about $1.60 each (versus $6.67 each for the CFL version). The CFL says it lasts 9.1 years based on 3 hours per day, or around 9970 hours. The incandescent advertises 1500 life hours. So not only are CFL life hours cheaper, but CFLs are also cheaper to operate. How much cheaper? 3 hours per day, 30 days a month, times 18 bulbs at 60 watts each is 97.2 kWh. At ten cents per kWh that's $9.72 per month. For 40-watt incandescents that number is $6.48 per month. For CFLs it's $1.78 per month.

One minor word of warning: the bulbs take about a minute or two to warm up. During the warm-up time the interior CFL coil is visible so you may consider it unsightly. It's not something I mind now that I'm used to it, but it's something to be aware of.

We're saving $7.94 per month with the new bulbs (at 3 hours per day of use). That kind of income would take a stash of over $3k at a 3% SWR. Well worth the $120 outlay for the bulbs. And that's not even counting the lower cost to replace the CFLs.

Here's a chart summarizing the above data:
40W Incandescent 60W Incandescent CFL
Cost per bulb $1.60 $1.60 $6.67
Life-hours 1500 1500 10000
Cost per thousand life-hours $1.07 $1.07 $0.67
Cost per year (3hr/day, $0.11/kWh) $4.81 $7.22 $1.32
Lumens 370 660 500

In conclusion, once you're debt free, your most profitable investments may be in energy efficiency upgrades.