treasury

February Financial Update

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Well, Mr. ODA didn’t like that I shared I didn’t know where our money was last month. They’re all kinds of Treasury accounts, and I’n just logging the transactions and leaving him to it. 🙂 I don’t have a lot of bandwidth these days, but I’m learning to juggle 3 kids and our finances.

PERSONAL FINANCES

We bought a new van this month. We’ve been wanting a new one for a while now. We bought our 2017 Pacifica in September 2020. It was a great deal, and it was a necessity as we were about to spend 7 weeks “homeless” and AirBnB/couch hoping. The car had some defects. We decided we’d keep an eye out for a newer version. Suddenly, Mr. ODA found a good deal on a 2020 Pacifica that had more options than we were actually looking for. We drove to Ohio about 36 hours later. They made us a good deal for our trade-in, and we went home with a new van! We put some of the purchase on two credit cards and then the balance with a personal check.

We’re currently paying close attention to credit card deadlines and our savings account. Where I used to pay a credit card bill almost after the statement closed so that it wasn’t hanging out there and I wouldn’t accidentally miss a deadline, I’m now leaving money in our savings account as long as possible. Our savings account is now earning 4% on the balance, so we’re seeing a significant amount of interest each month. I’m juggling managing our bills as close to their due date as possible, while also projecting future bills necessary since there’s a limit of 6 transfers out of the savings account per month.

All that was to point out that our credit card balances are high right now because of the van purchase, but the credit card statement hasn’t closed yet. Instead of paying the credit card balances down right now, the money is sitting in savings earning interest for 4-6 weeks between the purchase, to the statement closing, to the statement’s due date. More directly, we put $3,000 on one credit card for the van purchase. That was on 2/7. That statement, once it closes, will not have a due date until 4/20. That means that the money put on the credit card can sit in savings earning interest for about 70 days.

We also had to pay the initial payment for the restoration services on the rental that had a burst pipe. So while the insurance company sent us a check to cover the cost of this work, it’s still $17k sitting on our credit card, not being paid until the last minute. I should also note that our cash balance is inflated by about $50k because it’s the money from the insurance company that we’re waiting to pay the contractor as milestones are completed.

Had I seemed nonchalant about the plan? Because I’m definitely not. 🙂 I need to stay on top of how many transfers happen per month out of the savings account (while Mr. ODA randomly pulls money for investments), and not miss any deadlines and cost us interest charges or late payment marks on our credit. It’s stressful! Since we’re not doing anything that requires our credit to be pulled right now, it’s fine. If we were having our credit checked, having multiple cards nearly maxed out would be a problem. But we know we have the cash available to pay off all the credit cards if we needed to.

RENTAL FINANCES

I finally got through to someone on the issue with the improperly installed water heater. He says he submitted all the paperwork to send us a check for $200 to cover the plumber we paid to fix their issue. I haven’t seen any paperwork, nor have I received the check, but I’ll keep it on my radar and follow up in a couple of weeks.

I made all the decisions on the restoration of our flooded house. We’re expecting to hear a timeline for work to start next week, and then it’ll take about 40 working days to get the work done.

I paid a warranty for termites on another house. We had an infestation when we purchased the house, but we didn’t pay the warranty information. Our tenants found swarmers, and when we called to ask about treatment, they said they’d let us backpay the warranty and invoke that. We have a good relationship with this company and appreciated that offer, so we’re staying on top of the warranty payments now. The payment is $98 per year.

We received a surprise in the mail – the tenant had turned off the electric in the flooded house back on January 12th. The power company is supposed to notify me. I received an email on February 6th notifying me of an action on the account. So this was in my name from 1/12 to 2/1 for me to be billed $255 without my knowledge. Not to mention, there’s a bill hanging out there from 2/2 until the present that I’ll also get billed for. Mr. ODA sent our property management excerpts from the lease indicating that the utilities must be in their name for the entirety of the lease, that they’re responsible for this bill, and that they must get it back in their name immediately. We’ll see how that plays out.

RENTAL WORK

I picked up the keys from our property manager for the 3 houses I took over managing. I also worked on a rental here in town this week, which took about an hour including travel time, and I have another to work on later this week, which will be about 2 hours worth of work.

I sent a prospective tenant the pre-application we have, which he passed, so I sent him the application to submit. If all goes well, we’ll have that house re-rented with no vacancy period.

We have 3 leases that end at the end of April. We put a requirement that tenants give us 60 days notice, or that we give 60 days notice of any changes. That means that these leases need acknowledgement by the end of this month. So I ran the analysis on those 3 houses. We decided to increase the rent on 2 of them by $50 per month, each, and we’ll keep another house the same since it was increased last year. One house actually had an increase last year, but that house is well below market value, so we’re offering them to continue the lease with an increase because if they were to move out, we could get even more from the house based on it’s size and demographics. The 2 houses we’re increasing have a property manager, so she’s responsible for notification and signing an addendum before the end of the month. But once again, I need to manage the property manager and ensure we have action on time.

NET WORTH

Jumping on the I Bond Wagon

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What are I bonds?

Series I savings bonds are a type of bond offered by the US Government, with the intention of hedging against inflation. They provide the purchaser a return that is commensurate with the rate of inflation during the life of the loan. The caveat – this rate adjusts every six months. Between the months of May 2022 and October 2022, these bonds will pay an annualized interest rate of 9.62%. Guaranteed. Depending on what inflation does by October, that rate may go up or down, but as long as you purchase the loan before Halloween, you can enjoy that rate for the first 6 months of ownership. This is because the rate only changes every 6 months and the interest accrued compounds semi-annually.

Some Rules

I bonds must be held for 1 year. Therefore, you need to be sure that money can be made illiquid for that amount of time. Think of it like a Certification of Deposit, or CD, you can buy from a bank; however, in today’s numbers, an I bond has a FAR higher rate of return. If you need to liquidate the I bond before 5 years, you must forfeit the final 3 months of interest from when you sell/cash it (e.g., if you hold it for 18 months, you earn interest for only 15 months). After 5 years, there is no penalty. The bond will earn interest at the prevailing semi-annual rate for 30 years if you don’t cash it out, and after that it wont earn anything. The rate will never go below zero, even if the inflation rate (Consumer Price Index for all Urban Consumers) does go negative, although is can be 0%.

There’s a minimum purchase amount, which is $25 for electronic purchasing and $50 for paper purchasing. Then there’s a $10,000 individual, annual (calendar year) limit for owning bonds each year for each individual, which covers receiving or giving them as gifts as well. Example, I can buy $20,000 in a year if I’m giving a relative $10,000 of them, but that relative then cannot buy any because they now own that $10,000 I gave them. There is not a limit per household, so spouses can double up.

I bond earnings are subject to federal income tax, but not state.

Calculate the Rate

The I bonds have a fixed rate and a variable inflation interest rate.

The fixed rate is stays the same through the life of the bond. The fixed rate is set each May1st and November 1st, and it applies to all bonds issued in the six months following the date the rate is set. The current rate is 0%.

The variable interest rate is based on the inflation rate. It is calculated twice a year and is based on the Consumer Price Index.

These two rates are then put into a formula to get the “composite rate.” Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]. This means that currently, it’s [0.0000 + (2 x 0.0481) + (0.0000 x 0.0481)], which equals 9.62%.

Interest is compounded semi-annually.

How to Purchase

Series I bonds are bought through TreasuryDirect.gov after creating an account. This helps ensure legitimacy and provides simplicity for the purchase and ownership of the bonds.

You pay the face value of the bond. For example, you pay $50 for a $50 bond, and then the bond increases in value as it earns interest. For electronic purchases, you can buy any denomination, to the penny, between $25 and $10,000.

You can buy paper Series I bonds if you don’t want to set up an online account or make online purchases. When you file your tax return, include IRS Form 8888. Complete Part 2 to tell the IRS you want to use part (or all) of your refund to purchase paper I bonds. Purchase amounts must be in $50 multiples and you can choose to have any remaining funds delivered to you either by direct deposit or by check. There’s a limit of $5,000 worth of paper bonds. More information can be found on the Treasury Direct website.

I Bonds for Me

A guaranteed return of 9.62% for the first 6 months of ownership is quite enticing. High Yield Savings Accounts and bank-issued CDs are still hovering in the 1-2% interest range, and the most recent year over year inflation report announced for April 2022 was at 8.3%. Given COVID-19 numbers trending upward again, American and global supply chains still struggling, and the effects of trillions of dollars of extra money entering the American economy as bailout for the American public taking a long time to stabilize, I figured the consumer price index numbers that I bond rates are based off wouldn’t be dropping quickly anytime soon.

My logic. Again, a guaranteed return near 10% is phenomenal, even if possibly short term and variable. “Best” case scenario – the rate stays high and the interest keeps compounding for many semi-annual cycles. Granted, this also means that the inflation rate stays high and that isn’t something I’d prefer for my total financial outlook. But Series I bonds are hedges for the effects of inflation. So at least I’m “keeping up” in this section of my portfolio.

The most likely/medium case scenario – control over inflation happens in the next year or two and the rate drops several percentage points, such that it’s a real decision whether to keep a guaranteed return of 4-5% or to cash out the bonds and put that money into other investments. This would also mean that I’d lose 3 months’ worth of that 4-5% interest if this decision happens sooner than the 5 years.

“Worst” case scenario – for THESE bonds at least. Inflation stops and the interest rate on these bonds plummet. I cash out the bond in a year or two and I lose 3 months of interest. But let’s face it, the reason I’m quick to cash out is because the interest rate is low anyway. So I’m not losing much! And then, that also means that the rest of the American economy and my portfolio have been stabilized and things look a little more predictable.

When forecasting any of these three scenarios, I saw a fairly win-win-win situation, so I pulled the trigger on a major purchase of these bonds with some of the discretionary cash Mrs. ODA and I were sitting on as we navigate the craziness in our life right now.