Hey everyone, did you have a good month? May was a rough month for us. We had two big expenses that blew up our cash flow spreadsheet. Well, it’s not that bad because we have a good cash reserve and our income was outstanding last month. It could have been worse. Other than that, May was an uneventful month. We all had a lingering cough and we mostly stayed home. We visited the Rice Northwest Museum of Rocks and Minerals at the end of the May so at least we got out once. The weather improved at ton recently and we’ll do more fun activities in June. Okay, I’ll tell you about our big expenses, go over the 2018 goals, and share the details of our cash flow in May.
New HVAC – $6,575
Our HVAC has been broken for quite a few years now. First, the AC stopped cooling about 7 years ago and then the heater stopped heating about 5 years ago. The fan worked, but the whole system was really old. I called a repair guy and he said a control board blew out. They don’t make this part anymore and he told me the only option was to install a whole new system. The quote was around $8,000 in 2013. Whoa, that’s expensive! The climate is generally mild in Portland so I didn’t want to get a new system installed. In the winter, the outdoor temperature drops to around 40 degrees Fahrenheit. That’s cold, but the indoor temperature isn’t bad. We get a few 100 degree days per year, but the temperature hovers in the 80s in the summer for the most part. Do we really need the heater and AC?
Instead of getting a new HVAC, I opted to go with space heaters and a kotatsu table instead. We live in a concrete high rise that was built in the 60s. The building was converted to condos in 2007 and they put in very good windows. The result was a building with a great thermal mass. Our condo holds its temperature very well. All our neighbors crank up their heaters and our unit doesn’t get that cold. The space heater was enough to keep the condo at 68 degrees Fahrenheit. That’s chilly, but we put on more clothes and the kotatsu table kept us toasty.
The summers were generally tolerable as well. We opened all the windows at night to let the cooler air in. I also got a 20”high-velocity metal fan from Amazon. This fan helped a lot. It pushes a ton of air through our condo at night. Get one of these if you need a fan. It is so much better than those cheap plastic box fans. The 100 degrees days were tough, though. In the daytime, we usually just went to the pool or some place with AC like the library. This arrangement worked fine for many years.
However, last summer was bad. There was a big forest fire in the Columbia Gorge. A teenager threw a firework into the dry brush and started a huge fire in September. The whole city smelled like smoke for weeks and ashes were dropping everywhere. The air quality was horrible and we had to keep the windows closed because the ashes would blow in. It got really hot and we were miserable. Luckily, it was near the end of summer so the weather was starting to cool down. That’s when I gave in and planned to fix the HVAC. BTW, that teenager is on probation for 5 years and owes $36.6 million dollars. Kids, be safe with fireworks.
Anyway, I got a bunch of quotes for a new HVAC from various installers over the last 6 months which ranged from $6,500 to $10,000. I went with one of the cheaper quotes. The company has good reviews on Google so I feel okay about it. From what I understand, only a few companies make the smaller 1.5 ton heat pump. Most installers only offered the 2 ton heat pump. The smaller was cheaper and should be fine for our space. Anyway, we have heat and AC now, but we haven’t used it much yet. It hasn’t been hot enough. We’re pretty comfortable at 79 degrees indoors. Mrs. RB40 has to throw on another layer if it gets cooler than that. I’ll use the AC more this summer to stress test it.
New Mattress – $870
Our old memory foam mattress was about 10 years old. It was saggy and uncomfortable, but I was hoping to hold off until we moved into our duplex. That way, we can just toss the mattress and don’t have to move it. Alas, it was not to be. Recently, our tenant told me they are planning to stay a while. Mrs. RB40 also has been complaining that the bed was too hot and frequently has to go sleep on the couch.
This means memory foam isn’t going to work for us anymore. Memory foam mattresses are cheaper, but they’re hot because you sink into the foam. I also heard that memory foam mattresses don’t last very long. The foam compresses and becomes saggy in a few years. One option is to buy a relatively cheap memory foam mattress and replace it every 3-4 years. However, I don’t like doing that. I prefer to buy something that lasts longer.
After weeks of mattress research, I decided to go with the Pure Green natural latex mattress. Latex mattresses are supposed to be much more durable than memory foam and coil spring mattresses. I also like latex better because it is a natural material. I picked the 9” medium firmness and it arrived in a few days. The latex mattress felt great when I first laid down on it. You don’t sink into it like a memory foam bed so it’s cooler and more supportive. The price was a bit high at $795; however, it used to be $1,099 a few months ago. The price came down so I guess waiting paid off after all.
Unfortunately, I developed back pain at the hip bone after a few nights of use. The medium firmness was too hard for me. I called and complained and they suggested an additional latex topper. The company gave me 50% off the “soft” latex topper. What the heck, why not? That added another $75 to the cost of the mattress. My back is starting to feel better and I hope the back pain disappears soon. We’ll try it out for a while and I’ll return it if it doesn’t work out. I really want to like this mattress, though. It feels great when I lie down on it. I just need to wake up without pain.
Okay, enough about the expensive purchases. Let’s see how I’m doing on my 2018 goals.
This is my goal scheduling spreadsheet. Last year, I found that I needed to start these goals in the first half of the year. If I waited until summer, they just won’t get done. This is not looking good because it’s almost summer already. Everything will be put on hold until school starts again in the fall. I’m not doing very well so far this year. You can get a quick status update from the chart and see the details below.
- Increase our real estate crowdfunding investment to $100,000. I want to invest more, but we had too many expenses this year. We sent $14,000 to the tax man in April. It’s just tough to invest more when money is going out for other stuff. I hope to add another project my portfolio soon.
- FI ratio > 100%. The FI ratio is passive income divide by expense. So far, our FI ratio is 53% for 2018. This is dismal due to the HVAC. Some years are just harder than others. This year is going to be one of those.
- Increase bond/cash allocation to 30%. Going to 30% bond/cash will beef up our opportunity fund. This is very slow going because I’m not in a big hurry. I can probably get to 25% by the end of the year.
- Travel hack 100,000 points. Finally, we finished a goal. We signed up for some new cards and use them to pay for the HVAC and mattress. These points will come in handy for our vacation next year.
- Minor Redesign RB40. This one is really difficult to do because I can’t seem to budget time for it. It’s already tough to write and keep the site running. In May, I switched the site to https. That’s a big part of what I wanted to do this year. Next, I’ll need to work on the banner and logo. It’ll have to be after the summer is over, though.
- Blog 12 times at Fit by 40. This one is way behind now. I’m not motivated to write about fitness this year. At least, I’m still going to the gym regularly. For now, I’ll keep FB40 as test site for the redesign. You can see how I started the site here – How to Start a Blog and Why You Should.
- Blog revenue $100,000. This one is going to be very difficult so I’m grading it on the academic system. I changed the goal from blog “income” to blog “revenue.” Our revenue is quite a bit higher. The taxes take a big bite out of it. The blog generated $37,744 so far in 2018. That’s actually pretty darn good, but we’re behind the pace. You can see more detail on my Blog Income page.
- Join Toastmasters. I visited a local club and it was a nice experience. However, there are too many things going on right now. My mom needs help with her various doctor appointments. Also, school is almost out. I’ll spend more time with RB40Jr this year and cut way back on blogging. I just can’t squeeze Toastmasters into my schedule. This will have to be put off until RB40Jr is a lot more independent.
- Not paying for leaf removal. Showdown in November.
- Consolidate down to one property. We plan to move into our rental duplex and sell off the other 2 properties. This one will definitely take more than one year. I changed the due date to 2020.
- Visit Iceland. The trip is a go. I already booked our flight tickets, lodging, ferry, and rental car. We’re heading out next week! I’m excited.
Net Worth (+0.3% YTD)
I’ve been tracking our net worth since 2006 and it is very motivating to see the progress we’ve made. 2018 started off with a bang and we had a great month in January. However, the stock market turned volatile after that and it’s been mostly flat since then. I still think 2018 will be a good year for the stock market, but nobody knows how it is going to turn out.
My bet with Warren Buffett – I’ll benchmark our net worth against VFINX for 10 years starting in 2018. VFINX is up about 1% since the beginning of 2018. Our net worth is up just 0.3% so we’re a bit behind. Our net worth is diverse so it does better when the market drops.
Here is a graph of our net worth in May on Personal Capital. Our net worth was mostly flat in May.
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2018 Passive Income ($16,430 YTD)
Here is a quick summary of our passive income. You can see all the details at my new Passive Income page. We had a slow start in 2018 because one of our rentals was vacant for the first 2 months. It’s occupied now so the passive income is looking better. Hopefully, it’ll be smooth sailing for the rest of 2018. The only trouble spot now is P2P lending. We’re seeing more defaults and the interest payments aren’t enough to overcome the hits. If we reinvest in P2P lending, it would look better. However, I like real estate crowdfunding much more so I’m investing there.
May 2018 Cash Flow
Our cash flow was pretty tight in May. It was almost a negative month for us. Our income was higher than usual so we were able to deal with the high expense month without sweating too much.
Check out my Sankey diagram and see the details below.
Take Home Income (target > $10,000)
For 2018, our monthly take home income target is $10,000. May was an outstanding month. Our take home was $12,829 after estimated tax and tax-advantaged savings. My blog income was higher than usual and it helped a ton. Blog income usually drops off in the summer when everyone is on vacation. We’ll see how it goes this year.
- Mrs. RB40’s paychecks: $5,924
- Blog Income: $8,654. You can read more details at my Blog Income page. RB40Jr is on the payroll now as model and photographer. The income will go straight into his Roth IRA. I’m excited to see how this experiment will turn out.
- Rental Income: $983. All our rentals are occupied and we didn’t have any big repairs last month. I installed new blinds in one bedroom. It was pretty cheap at around $50. Read more at the Rental Property Passive Income page.
- Dividend Income: $812. More details at my Dividend Passive Income page.
- Real estate crowdfunding:$274. RealtyShares is starting to pick up now and it is looking good. Read more at my Real Estate Crowdfunding Passive Income page.
- Prosper P2P lending:$31. P2P lending was good last month.
- Interest Income: $16.
Monthly Expenses (target > $4,800)
For 2018, our monthly expense budget is $4,800/month, an increase of $300 from 2017. This does not include contributions to 401k, Roth IRA, and college savings. We had a few big expenses in May so we went way over the budget at $11,528. That’s our most expensive month in years, but what can you do. Hopefully, the HVAC will last for a long time.
- Housing: $2,365. Our housing expense is getting spendy. This category is over 50% of our expense most months. There’s not much we can do at this point except moving. We’re looking to do that in a year or two. This includes mortgage, HOA fees, and property taxes.
- Groceries: $523. Our grocery bill was under control in May. I cooked many delicious meals and we ate well this month. Check out some pictures. Clockwise from top left – Mrs. RB40’s veggie tart. This dish looked too beautiful to eat! Shoyu Chicken – Hawaii comfort food. Uzbekistan’s national dish – Plov with lamb. Lastly, Burmese fish curry. Oh man, it’s like the UN of chefs here at the RB40 household. Follow me on Instagram if you’d like to see more of my unglamorous early retirement lifestyle.
- Cash: $180.
- Transportation: $37. We share one car and we don’t drive much. I drop RB40Jr off at school in the morning and go grocery shopping on the weekend. That’s about it. We drive more in the summer when we visit local attractions.
- Kid: $16. RB40Jr ran some laps to raise funds for his school.
- Pet: $0.
- Bills: $308. Electricity, credit card annual fee, and insurance (auto, home, term life, and umbrella.)
- Health: $534. Gym and the bill for RB40Jr’s genetic testing. The doctor ordered the test last year to see if his hearing loss was due to genetic. The insurance said they don’t cover this.
- Travel: $0.
- Clothing: $85. Mrs. RB40 got some shoes. RB40Jr got some new shorts and a pair of pants from Target. Kids are hard on their clothes!
- Misc: $7,481. HVAC, mattress, an IKEA roasting pan, binoculars for the Iceland trip, and a shower curtain liner. Whew, I’m glad May is over. Hopefully, June will be cheaper.
- Pre-Tax Savings: $3,065. I contributed $1,420 to my 401k. Mrs. RB40 contributed $1,430 to hers. RB40Jr added $215 to his Roth IRA.
- Extra Savings: $1,300
Extra Savings 2018: $19,077
2018 is going very well and our extra saving totaled $19,077 so far. We sent a bunch of money to the IRS in April so most of this is gone. I didn’t send in estimated tax payments last year so we owed the tax man. I’ll do a better job this year and try not to owe as much.
Here is what I plan to do with our opportunity fund in 2018.
- Invest more in real estate crowdfunding.
- Pick up some dividend stock if I see a good deal. I purchased 50 shares of PM in April.
May 2018 Wrap Up
May was rough, but we got through it unscathed. Our income was higher than normal and our cash flow didn’t go into the red. Whew! I think the rest of 2018 will look much better. I’m pretty sure we won’t have any more expensive home repair bill this year.
June should be good. We are going to Iceland for 2 weeks so our travel expense will be higher than normal. However, I doubt our monthly expenses will be as high as May. Our income will start to drop soon, though. Summer is always very slow for Retire by 40. Also, I hope to add some money to our real estate crowdfunding portfolio in June. We’ll see how it goes.
Did you have a good May? Any big plans this summer?
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For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.
Joe highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help every investor analyze their portfolio and plan for retirement.
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