money management

February Financial Update

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PERSONAL

I’ve been busy getting started with a new job that should officially begin in the next couple of weeks. I’ve still subbed at the preschool a few days over the last month. I’ve been working on financial consulting work for a school in Virginia. I’ve also been trying to get our homeowners association documents in order while I execute a transition I initiated for a new management company, as well as getting the budget in order well before it’s presented to homeowners months after the start of our fiscal year. Anyway, laying all that out makes me realize I’ve juggled a bunch and have been pretty happy about all that activity going on.

In addition to what I’ve been juggling, Mr. ODA is a federal employee. So the current climate has been hanging over our heads. The uncertainty of what the future holds is more concerning than it has been in the past. Luckily, we’ve set ourselves up for success, but it still is hard to manage that we may not be in control of that decision.

RENTALS

We had multiple houses pay rent late this month, and I’m still working with another house that has been late for the last 3 months and isn’t fully caught up yet. We had one house break the screen door (claiming the wind grabbed it and slammed it against the railing), so we replaced that for $400 with labor. Another house had a faucet leaking and a door knob that wouldn’t twist. I also have to get out to a house here in KY that had lattice under the deck fall down. It’s supposed to rain all weekend, so I think I’ll head out there tomorrow and handle that before the rain this weekend.

NET WORTH

We recovered from last month’s slump, but we’re still slightly below December’s number. Other than the last two months, we’re still greater than any other net worth calculation we’ve had. Our investment accounts raised slightly, and our debt amounts decreased slightly. Both sections trending in a good direction. There were no major purchases or adjustments to our accounts this past month, and mostly our spending was fairly low.

Funds Management in Excel

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At the beginning of every year, I set up two spreadsheets in Excel. One is for our personal money management, and one is for each property’s expenses in the year (that will eventually be put into Schedule E in our taxes). I regularly mention using Excel to track your income and bills, so here’s a quick snapshot of what I do.

These are all dummy numbers, but otherwise, this is my spreadsheet set up (with several lines eliminated to reduce your visual clutter). The top purple section is rental income per house, the green section is rental property expenses, the blue section is our home’s bills, the gray section is what affect’s Mr. ODA’s account instead of our main checking account (Mr. ODA has his original account from before our marriage (I have access to view it) because of benefits associated with the linked credit card, and it was never worth closing it or adding my name to it). The white is what’s left over. The blue section is not necessary to be a different color and is left over from another way I tracked bills, but I’ve left it to differentiate home bills versus credits and investments.

The final line of “Other*” captures items that only occur once or twice a year, but have a significant impact on the checking account or is a deadline I want to be aware of. I keep the preschool registration fees on there so that it’s on my radar that registration comes due at about this time. In future months, I have taxes that are due for houses we have not escrowed, which is about $1500 worth in June and about $4000 worth in October.

The columns are organized by Mr. ODA’s pay check date. His pay check appears in the account every other Saturday, so that’s the date at the top. Then I’ve put all the income or expenses that align between that pay check’s date and the next pay check’s date in that column. This helps me project whether I’ll need a transfer from savings to cover the checking account balance. This particular section of the spreadsheet doesn’t show account balances, but you get the gist of the organization.

Each year, this is tweaked a little. I eliminate lines that are no longer necessary (for instance, our HOA is now paid annually, so I don’t need a line taking up space for a once-per-year bill). I add lines that become necessary (cable used to be paid by credit card, but now there’s a fee for that; since it affects our checking account monthly, it gets a line). It would probably be better to separate out my “investments” line into the specific transactions that happen each month, but I didn’t want more lines on my spreadsheet.

When rent is received or a bill is paid, I change the font color to gray. This indicates that it’s done and helps eliminate visual clutter for me. I can focus on the black font, which indicates to me it’s still due.

As I get closer to each pay check column, I update the projections. For example, a credit card may have had more than average expenses on it. This could happen because one credit card has a quarterly bonus for gas purchases. So while it’s typically $100 for a statement, it may be more like $200 because of the gas purchases on it. I update the projected payment because I need to monitor the checking account balance too. I also keep last year’s utility bill amounts in each column. I use this to track whether this year’s payment is comparable to last year’s at this time, so I know whether to look further into a bill because it’s significantly different than last year’s (for example, if last year’s June gas bill was $30, and this year’s June gas bill is $60, I want to check to see why it doubled, whether that means a leak or error in billing).

Every person’s tracking is going to look different. You may just have rent and utility bills to pay, and you can manage it via email notifications. You may want a more active approach to the tracking and use a spreadsheet in some fashion. This is just a start for you to have a visual in how a spreadsheet may be helpful in your money management, and may even help eliminate late fees or billing errors because you’re more actively managing your money.

January Financial Update

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As an intro for newbies: I write a monthly finance post. These posts started out as a way to manage our dollars spent per category. It evolved to show insight into my monthly money management and thought process. It’s also meant as a way to remind people that they should be looking at their money regularly.

Every month, I’m looking back at my spending, looking at trends on the higher level (e.g., why is my credit card higher than I expected), and sharing the rental property expenses and activities that I’ve accomplished.

I typically post on Thursdays. Unfortunately, life got in the way. I had 98% of this written, but I hadn’t updated our accounts until 10 pm, so this is now posting off-schedule, on Friday morning. Sorry about that!

RENTALS

I suppose with 13 houses, it’s inevitable that I’ll have to keep track of one.. or a few.. to collect their rent. One tenant is set up to pay twice per month (they pay a premium for this). They paid both parts of December late, and the first part of January late. They pay a late fee with that. I had two other tenants pay late by a few days, but they communicated this up front, and I didn’t collect late fees.

I’ve been sharing that I have a tenant who has been behind on rent since October 1 and has communicated very poorly. By the end of December, she was caught up with rent due, but no late fees. We’re now 11 days into January without any payment. My frustration with her was that she didn’t communicate at all for the first two months, and didn’t keep her word on anything that she said she was going to do, but didn’t tell us that something would change. I always say that I’m willing to help and work with you, but you have to talk to me. If I have to beg you to tell me what the plan is, I can’t help.

I paid a carpet cleaner $250 and paid a painter $2000 for a house that we’re turning over. The carpet was new before the last tenant, but they were there for over 3 years, so it had to be done. They didn’t damage the walls, but my property manager said that all the walls looked like different colors, and I didn’t trust “touching up” 4 year old paint. The paint looks amazing, so I’m happy I went for the whole house.

I paid just over $1000 as a deposit on 3 new windows for a house, which are scheduled to be replaced on Monday (a couple of weeks for new windows far exceeded my expectations!). We had replaced the majority of windows when we bought the house. However, at the time, the kitchen and bathroom windows were considered an irregular size, and we were told they were going to be $2000 just themselves, when we were paying $2000 for all the other windows. I don’t know what pricing scheme changed in 5 years, but now all sizes are the same price, and the 3 of them are $2000 now.

We had a tenant ask to be released from his lease, which we concurred to. We had terms associated with that, which I’ll share in a separate post. We were able to get a couple into that house with no loss of rent, which has been appreciated.

We’re under contract with our handyman to do work on a house, so that’s over $5,000 of cost that is waiting to rear its head out there.

PERSONAL

This was a month of spending in activities. I signed up for a 5k in August with “early bird” pricing, our daughter’s acro class had semester tuition due, and the kids’ monthly school tuition was paid as usual. Mr. ODA bought a new battery for his car and installed that. On somewhat of a whim, we replaced our back door, which was over $1100 added to Mr. ODA’s credit card.

Just before Christmas, we took a trip. It was just to Cincinnati, which we regularly do as a day-trip. However, we wanted to accomplish a few things this time around. We went to Top Golf for 90 minutes and lunch, let the baby nap at the AirBnB, went to Zoo Lights, spent the night, and then went skiing the next morning (the kids’ first time!). We already purchased season passes (and equipment) for skiing for 4 of us, and had already purchased the zoo annual membership. Without the cost of those two things, our trip cost $330 for Top Golf, lodging, parking (we stayed in the city), a ski lesson for our 5 year old, and food. Our lodging for 1 night was nearly $200 and was significantly more than we’d typically spend on lodging. However, we’re still in a phase of life where the baby needs the be in a space by himself so he sleeps for a nap and through the night. That means we look for a place with at least 2 bedrooms and 2 bathrooms, or 3 bedrooms and 1 bathroom (bonus points for master-sized closets or an extra bathroom with no windows for me to black out). We then made 2 day trips since then, and the kids are doing awesome on skis.

NET WORTH

Our cash has decreased, but that was offset to taxable investments because of our Treasury Direct accounts. Even with our extra spending, our credit card balances are comparable to last month’s. The increase in net worth from last month is mostly due to increases in our investment accounts.

This year’s goal is to hit $4 million net worth. Mr. ODA said that to our financial advisor via Instagram, and he didn’t share that publicly because it wasn’t relatable. The point in sharing here is that, well it’s January and people set goals, and to note that even if this goal specifically isn’t attainable to you in the short term, know that we also once had an account balance well below where we’re currently at. Consistent investing in the market (maxing out the 401k, maxing out the Roth IRAs, and establishing regular investing and watching the market) is a large contributing factor to where we are 10 years later. If I take the investment properties out of the equation, we’re still over $2 million net worth. That doesn’t happen overnight, and it’s something you can start working towards today.

Home Sale Proceeds

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*This post was started in November 2022, but our son was born 3 weeks early (and on Thanksgiving), so it fell off my radar for a long time while I caught back up. Let’s dive in now.

We sold our primary home at the beginning of November to move a half hour away and closer to family. It was a new construction home, and we purposely sold when we did to avoid capital gains taxes. If you call it your primary residence for 2 of the last 5 years, you’re exempt from capital gains. Considering the market over the last two years (2020-2022), we were slated to owe a hefty penny if we sold before that 2 year mark.

Had we sold earlier or perhaps waited for the spring, we could have made more. Instead, we opted to be rid of the home, not try to rent, and be able to have that behind us. We were extremely fortunate that we were under contract by the end of the first weekend we listed. The market had cooled significantly from the multi-bid, exorbitant pricing, with appraisal waiving language days.

We only had 2 showings. The first politely let us know they wanted a walk-out basement. We had an amazing basement with 9′ ceilings and no soffits, but it didn’t have a door due to the floodplain. We don’t really understand why, but the backyard was definitely low enough for it to have been a walk out basement. It was one of the red flags that made me uncomfortable living there, along with a long delay for construction on our lot and a few around us due to extensive sink hole surveying. The second showing made us an offer 10k below asking. We sort of split the difference at $495k, and they accepted.

There were several houses listed in that neighborhood for weeks after we closed, that were listed the same weekend as us, so I am eternally grateful that the stars aligned for what we wanted/needed.

PROCEEDS CALCULATION

We purchased the home for $346,793 in November 2020. The contracted purchase price when we sold was $495,000, which was completed in November 2022. That’s a difference of $148,207, but that’s not “take away” money.

As the seller, you’re typically responsible for paying out the Realtor commissions. They’re typically 6%. We asked our Realtor if she would drop it to 5% (buyers agent gets 3%, sellers agent gets 2%) since we had drawn up our purchase contract sight unseen and this was the 4th commission based transaction she had from us in less than 2 years. She agreed. I truly don’t like asking someone to take a lower commission, but due to there being several transactions in a short period of time, many not even needing much effort (showings, phone calls, etc.), I accepted Mr. ODA’s plea to ask. That comes to $24,750 paid in Realtor commissions.

We then have to pay off any loans that used that property as collateral. We had a mortgage and a Home Equity Line of Credit (HELOC). We had put 20% down on the purchase, so the mortgage had about $266k left as the balance. The HELOC had been used for a couple of other things than just the down payment on a new home, and it didn’t require principal payments on it while we had it, so that balance was about $86k.

We walked away from the closing table with about $117,000 after tax offsets and such.

PAST DETERMINATIONS FOR WHAT TO DO WITH THE PROCEEDS

In July 2012, we purchased our first home for $380,000. We put 20% down; it was a foreclosure, but the only work we had to do was on the main floor bathroom. When we sold that home Fairfax, VA for $442,500 in October 2015, we paid off a car loan and bought our second two rental properties in Richmond, VA. The car loan was only at 0.9% interest, so it didn’t meet Mr. ODA’s requirements to pay down loans with higher interest rates, but it did alleviate one monthly payment I had to manage. The irony of that statement, now that I manage 14 houses worth of payments all year. We also used those proceeds to put 20% down on the purchase of a new primary home outside of Richmond, which had a purchase price of $359,743. We paid off House1’s mortgage because the loan had a balloon payment that we needed to be ahead of.

When we sold that Richmond home for $399,000 in September 2020, we took about $109k away. We used those proceeds to put 20% down on the purchase of our new home, at $346,793, outside of Lexington, KY. We paid off House4, House6, and House13. Since paying towards a mortgage and not paying it off doesn’t change your monthly cash flow, we focused on where we could eliminate a mortgage payment. We’ve since paid off House11 and House12. House12 had a high interest rate, so we were interested in eliminating that as fast as possible, even though we were paying for it with a partner.

WHERE DID THE MONEY GO THIS TIME

We purchased our current primary home last summer and put work into it. Since we purchased it before selling our house, we used a HELOC to pay for the down payment. That meant that when we walked away from the closing table, the money we were putting in our bank account had no distinct purpose (like in the previous cases where we had to use some of the sale proceeds to buy another primary house).

The first thing we did was open a high yield savings account. At the time, it was necessary because our savings account wasn’t paying market rate. I remember Mr. ODA complaining that interest rates on loans were increasing, but it wasn’t being shown on savings interest side. He found a high yield savings account that gave a sign on bonus (we like that ‘free’ money!). We put $50,000 into that account, earning over 4% interest. The money in that account was removed and put into our regular savings account, which is now earning over 4%.

Since the money didn’t have a purpose, we needed to get it into the market. If we put it all in the market at once, then we’re subject to a lot more fluctuation. To hedge our volatility, we planned to schedule regular investments. It seemed crazy to me, but our financial advisor and Mr. ODA decided on $5,000 per week. That would take 20 weeks to accomplish. To my chagrin, this was set up as an auto transfer. Even with a large balance sitting in the account, it didn’t hurt any less watching $5,000 every week be taken out. This plan didn’t last long though because Mr. ODA found Treasury accounts that act as short term certificates of deposit. My next post will go into this in more detail.

Not an immediate need, and we didn’t rush to buy something for the sake of buying it, but we earmarked about $20k for the purchase of a new van. I love the van we bought in 2019 (which was a used 2017), but it had a few kinks in it. I also felt pretty good about the deal I got on it. However, I didn’t put the time into test driving and looking at this van that I really should have because one of us had to stay in the show room with the kids while the other went for a drive. I also know what I’m looking for in a used car now (that was our first used car experience), versus buying a brand new car that hadn’t been driven by others. It helped that I was looking to buy the same exact van, just newer, so I know how it’s supposed to work and what to test. We ended up finding a van about 2 hours away from us in early 2023. We’re almost a year into this van, and I absolutely love it.

In the back of our minds, we’re still looking for another rental property. There’s an area in town near us that would work for short term rentals, which I’d like to dabble in. We have seriously considered a few, but interest rates have shot it down. A 1500 square foot house, with a $200,000 mortgage, comes to a monthly payment (of just principal and interest) of about $1,400. That’s just not good margins with such high interest on it. We’ll keep an open mind, but so far it isn’t panning out.

SUMMARY

Our savings account is currently earning 4.22%. Mr. ODA is also managing that balance by using the short-term Treasury bills. Since we started with the Treasury bills, we’ve made about $500, which is on top of the interest we’ve earned to date on the savings account, which is over $1600.

We started off with paying the mortgage that had a balloon payment. It was a commercial type loan, so it was amortized over 30 years, but was really only a 5 year loan. We decided to pay it off instead of re-mortgaging it at the end of the 5 years. After we took care of the balloon payment approaching, we started paying off mortgages where we could eliminate a payment (we had multiple houses with $30-60k worth of a balance), and then moved onto paying off high interest rate mortgages (for reference, a high interest rate was 5% … which is much different than today’s mortgage rates being “good” at 7.5%). We went through the process to refinance several mortgages, so we’re at a point where we’re happy with the mortgages that are left. If we wanted 100% cash flow, we’d start paying towards principal balances. However, we don’t feel that’s necessary for our current situation. We have 6 mortgages left (including our personal residence) out of 14 houses.

We definitely are more hands on with our money management than most people are going to be interested in. Now that we’re happy with our mortgage situation, we are focused on the interest side of our money working for us. With multiple Treasury bills that are reinvested for short periods of time (4 week and 8 week bills), then we’re able to earn quick interest while we don’t have a purpose for that money.

One of our houses has a balloon payment again (commercial loan). That will come due in about 3.5 years. Considering what current interest rates are, it doesn’t appear that refinancing is as enticing as just paying off the balance or selling the house. We’ll have to keep that in mind as we work on investments and having enough liquid cash over the coming years, because that loan’s balance is going to be about $173k at the end of the 5 year term.

For now, we’re in a good money management state with several short term bills and a savings account rate over 4%.

Our Money Management

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I manage all our income and expenses (at a high level, like credit card payments, not individual line items). I have a spreadsheet that I set up in 2012 and have used religiously since then. I’ve shared how I set it up in the past, but we’ve entered a new phase that makes my spreadsheet even more important to me.

BACKGROUND

FIRE. Financial Independence, Retire Early. This isn’t a post about FIRE specifically, although it’s the movement that sparked Mr. ODA to go down our financial path.

The purpose of our rental portfolio was always for both Mr. ODA and I to quit working. We had covered my income before any kids were born, but I kept working because there was no reason to not be working. Once our son was born, I took 14 weeks maternity leave (not a separate bucket for Federal employees back in 2018; it came out of my own accumulated sick leave), then I worked about every other day for 8 months while Mr. ODA and I swapped child care roles, and I burned down my leave.

While we don’t plan to work full time, we do plan on keeping part time positions. We’ll work on things that bring us joy, rather than an office job with office politics. Since I stopped working, I’ve done odd jobs, part time. For example, I worked as a census taker and served beer at a local race track over the last 4 years. These were all seasonal, part time positions, with no long term commitment.

Now that I quit working, it’s Mr. ODA’s turn. We hardly skipped a beat when we left my six-figure salary behind (although a pandemic probably helped curtail spending on our behalf!). However, the thought of losing his salary as a safety net and losing insurance are two items that have caused some pause.

THE SPREADSHEET

For you to understand my panic that I’ll get into here, I thought a quick reminder was necessary. This is how I manage our money. It’s nothing fancy, but it works. I don’t miss payments. I can allocate expenses to a specific 2-week period against what income is brought in at that time.

There are two parts to the spreadsheet. Well, there are about 10 tabs, but this first tab, with two sections, is what’s pertinent.

Part 1 is this section. This image is a very scaled down version of the section. We have 13 houses, 6 mortgages that get paid, 6 credit cards that get paid regularly, and a few other lines that I removed.

All numbers are made up place holders, except the investments. I deleted my IRA contribution line because it’s wonky (but I will max out IRA contributions), but I wanted to show how much we’re investing regularly. There’s $75, per kid, per month, going into their investment accounts. Then there’s general investing happening with one $1000 transaction and two $800 transactions per month. Mr. ODA is investing into his IRA to max it out ($6500/12=$541 per month..sort of).

You can see that I’ve listed Mr. ODA’s pay dates at the top, and then his salary income on the next line. The gray section accounts for all rental income. I’ve allocated the income into the salary two-week period that makes the most sense (about half pay me on the 1st or 2nd, and the rest pay on the 5th). The green section shows routine rental property expenses. The entire next section are our personal expenses. The blue is left over from when I was managing two personal homes last summer (but kept it to differentiate our house bills versus other bills). The next gray section (which I’m only just realizing is a second gray and should be a different color as to not conflate the two grays.. what a rookie mistake) accounts for expense that come out of Mr. ODA’s bank account. Finally, I have an “other” section. This is where I capture large expenses that don’t need their own line item because they only happen once or twice a year. Here I’ve put tax payouts that will be due in October (that’s 4 houses worth, and it’s last year’s numbers – because I want to know how this year’s amount owed, when it comes in, changed from last year’s to discern if it’s reasonable or if I need to dig into it).

This is part 2. Now, part 1 accounts for the general timing of income and expenses, but it doesn’t perfectly capture the due dates, scheduled payments, or whether I’ve paid it and it’s hit the account.

The top line is linked to the section that I update our checking and savings account balances. Then I transfer all the items per pay period into this list format. In this example, let’s say I’ve already scheduled the gas payment. So I mark it as gray and put the date in the left column. Similarly, our investments are automatic, so I mark them in gray as we get to that two-week period.

At each border lined, I put the total for that section. You can see that at the end of the 9/2/23 pay period, I project a negative balance. Truly, we seem to have more income than I project (rewards cashed out, someone paying partial rent a little early, etc.), so I don’t take any action until I need to. There are Federal regulations regarding savings accounts; so we can only make 6 withdrawals from the savings account before fees apply. I manage these projects to know whether I need to make a withdrawal. If I need to, then I project what other expenses I may have and transfer a little more than I deem necessary.

THE PLAN

So our first step to him leaving is to pretend we don’t have his salary. Mr. ODA set up a new bank account. The majority of his paycheck goes into that account. We still have $250 going into another account, and about $400 going into a third account because we need to meet the requirements of direct deposits to prevent any account maintenance fees.

Our general principals in account management was always to take money into our main checking account, pay out bills for that two week period, and put the balance into savings. However, that wasn’t creating any forced feeling of managing without Mr. ODA’s salary. I’m more of a visual learner, so I appreciated this concept of having the money automatically transferred to a completely separate account.

EXECUTION OF THE PLAN

The first month of this plan had me on edge. The accounting in the checking account meant I was constantly back down to a balance of about $500. When I worked in an office, I was at the computer everyday checking our money. Now that I’m responsible for 3 tiny humans, I’m rarely on the computer. I project out our routine expenses, but there have been plenty of times where a $100 or $500 charge goes through that I didn’t have listed in my expense column for that period. Therefore, I like to keep at least $1000 as a buffer in the checking account to cover those little expense that can add up. So keeping the projection to less than $500 in the checking account panicked me.

Now wait. It’s not that we only had $500. We have a savings account linked to that checking account. We have this online account that’s taking Mr. ODA’s salary and just building the balance because we don’t use that account for anything. We have Mr. ODA’s old personal checking account. And last but not least (as my adorable 3 year old says all day long), we have plenty of investments that can be liquidated within 24 hours. We have the money. It’s just the panic of having the money in the spot where the bills are being paid.

SUMMARY

I’m sure there are easier ways or “better” ways to account for this. I don’t like automatic payments for bills because I like scheduling them against our cash flow. I’ve used this exact set up since 2012, and it hasn’t failed me. Taking full responsibility to pay bills means I am very scared to miss a payment and cause a negative hit on either of our credit reports.

Now that we’ve eliminated about $5,000 per month of income, without changing our spending in any way, I’m interested to see how things go. We have a great spending mentality – we’re not spending on frivolous items and we weigh the cost benefit of a purchase to us. That’s not to say we can’t do better. I’m sure we can be more diligent about our grocery spending or at least cooking what we already have in the house (we don’t spend much at restaurants in a month). I’ve already started tracking our expenses month to be sure we can watch our trends and re-evaluate our spending if needed.

Now that we have this account growing with no need for it to pay the bills, we will use it for fun things. We’re not very good about doing fun things. Two summers ago, we wanted to buy a vacation home at a nearby lake. We decided that instead of spending $1200 per month on a mortgage to go to the same place all the time, we’d plan vacations each month and spend up to $1200 without “guilt.” It was great. We had so much fun. But it lasted 3 months. Having a newborn put a damper on activities, but we’re ready to do the same again.