Categories
Personal Finance

Book Review: The Automatic Millionaire by David Bach

The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich

Author: David Bach
ISBN: 0767923820
Amazon Link: https://www.amazon.com/gp/product/0767923820

I was in a used book store today and saw the original version of this book and decided to pick it up. Here is my review.

Chapter One: Meeting the Automatic Millionaire
Chapter Two: The Latte Factor
Chapter Three: Learn to Pay Yourself First
Chapter Four: Now Make it Automatic
Chapter Five: Automate for a Rainy Day
Chapter Six: Automatic Debt-Free Home Ownership
Chapter Seven: The Automatic Debt-Free Lifestyle
Chapter Eight: Make a Difference with Automatic Tithing

Bach starts out with a story of a “tortoise couple” who did not make a lot of money but who was able to amass almost $2m in assets via consistent and automatic savings over a long time period. This is the classic get rich slowly story and is a good opening to prove that with a $50k income a comfortable retirement is still possible.

In the next chapter, Bach introduces the concept of the “latte factor”. A simple approach that shows how small changes in habits to spend less can have big impacts over long periods of time. While I have always thought that watching the small items is important, I think Bach misses a point in the opening of this concept.  If you are not making good decisions on big purchases the latte is not going to make any difference! His use of the charts and the simple math are effective, but his 10% investment growth rates are a little ambitious. I also strongly disagree with his advice on not needing a budget. Every Fortune 500 company has a budget and so should you!

The next two chapters are the meat of the book and represent the two most important topics. In chapter 3, he introduces the concept of pay yourself first. I am a big believer in this, and his highlighting of the 401k to achieve paying yourself first is exactly the right approach! In chapter 4, he goes on to emphasize how important automation is which is also very effective. We have tools available today, via our paychecks, retirement plans, and bank accounts to make savings completely automatic. You still need to spend some effort in setup, but maintenance is very easy after that. You can’t spend money that you don’t see, so pay yourself first and then you can spend the rest.  In the 2nd half of chapter 4 Bach starts down the path of “how to invest”.  Since I am 100% VTSAX,  I don’t agree with his recommendations as they are unnecessarily complex.  He needs a simpler approach here.

In Chapter 5 on automatic savings and emergency funds he makes some good points but again it is just too complicated.  The options he presents just are not necessary. This whole chapter could have been replaced with one sentence: setup an online savings account and have money automatically transferred each month to establish and maintain an emergency fund.

Chapter 6 on home ownership and the benefits starts out well but again he complicates things. The biweekly payment trick is good, but you don’t need to pay someone to do this for you! If you are paid every two weeks, there will be two months where you receive 3 paychecks. Simply make an extra principal payment of half your mortgage in those two months or better yet, just make a full extra payment in one of those months.

Chapter 7 on the debt free lifestyle is in the wrong order based on my Investment Walk.  I understand that he wants you to pay yourself first but you can’t do that if you are saddled with debt.  The spending needs to be cut, the debt needs to be attacked, and then you can start to invest.  For those struggling with overspending and debt, I recommend the Dave Ramsey snowball approach.

Chapter 8 on tithing and giving is good in the sense that the same benefits one see from automatic savings and investing can also be applied to the giving side of the equation.

Overall I like the book and I think it is a good beginner personal finance book.  I certainly did not agree with everything he says but he has some good foundation concepts that will serve people well.  I think the key reason why this book has been so popular is it goes right after the Psychology of money and puts a system in place that enables people to be successful.

My Rating: 3.5 Stars

 

Categories
Personal Finance

The Simple Path to Investing and Growing Wealth

A search on Amazon for “Investing” returns 40,000 books on the topic.  There is no shortage of books, opinions, or information written on investing.  For the new investor, it is an intimidating topic that can seem somewhat overwhelming.  I have conversations with many people who think investing is too complicated, or they are paralyzed by the fear of making a mistake.  We have been tricked to believe that investing is a complex and difficult subject, one that is better left to the professionals on Wall Street.  My goal here is to break this topic into 3 simple steps that create a road map for the average investor.  These steps will not cover every scenario or personal situation, but I truly believe that for 99% of people this is the simplest path to investing, growing wealth and becoming financially independent.

Step 1: Saving to Invest

This is often an overlooked step, but you can’t invest money if you don’t have anything left at the end of the month and are saddled with debt.  To create a situation where you have the money to invest, you must spend less than you make, by creating and sticking to a monthly budget. Once you are generating savings at the end of each month, you are now ready to begin what I call “The Investment Walk”.

Photo Credit: Chaval Brasil

Step 2: The Investment Walk

I believe there is a very specific path you should take when it comes to investing and deciding on where and how to invest your savings.  I am not talking about investment allocations between stocks and bonds, or even what kind of financial instrument you should buy.  I am talking about the programs and accounts you have available to invest in: 401k’s, Roth IRA’s, IRA’s, brokerage accounts etc.  Here is the path laid out one brick at a time:

  1. Have an emergency fund with 6 months of expenses. Life happens.  An emergency fund is to help smooth out the unexpected that will inevitably happen. Having funds tucked away in an online savings account like Ally Bank, will help prevent these events from derailing your investment walk.
  2. Be debt free except for your house.  I have always had an aversion to debt.  It is simply how I am wired, and it has served me well over the years. The only acceptable debt I believe you should carry is a mortgage on your primary residence.  Get rid of all other debts, and you are truly ready to make your first investment.
  3. Fund your 401k up to your employer match.  Many employers will offer a 401k (or simmilar) savings plan along with a company match. Participating in a 401k, up to your employer match, equates to a guaranteed 100% return on your investment.  You won’t find anything that provides better returns than this! If your employer offers a 401k match,  you are literally leaving free money on the table if you don’t take advantage of this.  It blows my mind, the number of people I see in my job not participating in the company matched 401k’s.
  4. Fund your Roth IRA up to the maximum allowed.  The Roth IRA is a fantastic retirement vehicle.  Unlike your 401k, which is taken out pre-tax, the Roth IRA contribution is done with after tax dollars.  While this might initially be seen as a negative, the huge benefit of the Roth IRA is that withdrawals are tax free and there are no minimum required distributions!  If you contribute to a Roth IRA early in your career, you can build a sizable tax free nest egg. Maximum contributions for 2020 are $6,000.  The only downside to the Roth IRA is that is is not available to individuals making over $139k or married couples making over $206k per year.  Learn more
  5. Fund your remaining 401k up to the maximum allowed. If you have completed steps 1-4 you are really starting to make some progress on your long term retirement goals!  If you still have funds left we go back to the 401k and fund the remainder up to the maximum which is $19,500 in 2020.
  6. Fund your Health Savings Account (HSA) to the maximum.  If you participate in a high deductible health plan, you can contribute $7,100 in 2020 to an HSA pre-tax for future medical expenses. Leveraging this benefit is a great hedge against rising healthcare costs. Read more about why I love Health Savings Accounts.
  7. If you have kids, contribute to a 529 college savings plan.  College is expensive, but the 529 savings plan allows for tax free investment growth to help pay for college
  8. Pay down your mortgage until it is paid off. There is probably no topic in the personal finance community that is debated more than paying off your mortgage.  There are some that are strongly for it and there are just as many that are against it.  For me, I simply don’t like debt of any kind, and recommend paying off your mortgage.
  9. Invest in a taxable Vanguard brokerage account. If you have made it this far, you are a personal finance rock star. You have a strong income, you are spending significantly less than you make, and you have just paid off your house! What next?  Now you can take your mortgage payment and start investing that each month!

Step 3: Investment Allocations

After laying out the investment path above, we now need to turn to the allocation side of investing.  What are we actually going to invest in? Are we going to buy stocks, bonds, or mutual funds? This step is where I see people struggle the most and where most bad decisions are made.  The good news is that I am going to make this super simple!

Invest in low cost, broad market, index funds

If you are at least 10 years from retirement, invest in an index fund like the Vanguard Total Stock Market Index Fund (VTSAX).

That is it?  Yup. I told you this was going to be easy.

What about diversification?  You are diversified across the entire stock market!

Uncle Bob told me index funds are boring, and I should be buying XYZ stock? Uncle Bob is not going to beat the market.

Isn’t being 100% invested in stocks risky? Not if you have a long time horizon.

I could go on and on.  If you still think you can consistently beat the market please read: The Little Book of Common Sense Investing.

As much as I love VTSAX, unfortunately not every account provider is going to offer it, however, most should offer something similar. Here are our current accounts and how they are invested:

Roth IRA: 100% Vanguard Total Stock Market Index (VTSAX)
Rollover IRA: 100% Vanguard Total Stock Market Index (VTSAX)
401k: 100% Fidelity® 500 Index Fund (FXAIX)
HSA: 100% Schwab S&P 500 Index Fund (SWPPX).
529: 100% TIAA-CREF Equity Index Fund (TIEIX)
Taxable Brokerage: 100% Vanguard Total Stock Market Index (VTSAX)

Since we have a long time horizon, we are 100% invested in low cost, broad market, index funds! 

What if you are closer to retirement?

If you are closer to retirement, or if you just want to adjust your risk profile you can always add the Vanguard Total Bond Market Index Fund (VBTLX) to your portfolio.  With just these two funds, VTSAX and VBTLX, you can easily control your investing approach and risk tolerance.  It does not get any easier than that!

With these three simple concepts, combined with my investment walk, you can start down the path of growing wealth and achieving your financial goals.

Categories
Photography

Photography Tip: #2 Shoot Using the RAW File Format

Previous Tip: Photography Tip: #1 Only Show Your Best Work

The RAW format is the digital negative file taken directly from the imaging sensor with no edits or in camera processing.

I get it, switching from JPEG to RAW is scary.  JPEG is so easy you just shoot download and it is instantly available to view on your computer and publish almost anywhere.  JPEG files are the most common and easiest to view image files that exist.  Almost every digital display device in existence supports viewing a JPEG file.

Benefits of switching to RAW

So why switch from the soft and cozy comfort of JPEG? One word flexibility. The big benefit of shooting in RAW is you have so much more flexibility when it comes to the editing and post processing of your images. Underexpose a shot by more than a full stop? No problem, pull that exposure right back in editing. Want to change the white balance since you bounce flashed off a yellow ceiling? Easy, you can completely change the white balance or adjust multiple stops of exposure in editing. You can also pull out detail that you never knew existed when you were just shooting JPEG. Most enthusiasts and pros I know all shoot RAW but there is one scenario where it can be more beneficial to shoot JPEG: Speed! RAW files are really big. My Sony a7r III outputs 42MB compresses RAW files! If you are a sideline sports photographer, or a photo journalist trying to hit a deadline, you can’t wait for 42MB files to transfer to your editor. In these industries most people are shooting JPEG,  since speed is more important than the absolutely best image quality.

My RAW journey started with my Canon 5D Mark II. After reading all the benefits of RAW, I started shooting in RAW+JPEG mode so both file formats were captured with every shutter release. I shot like this for almost a full year before I was finally comfortable enough shooting RAW to leave the JPEG capture turned off.

A big reason why RAW files can be so intimidating is that the software to process them is complex and challenging to learn. I use Adobe Lightroom Classic as my RAW processor and it has taken a significant investment of time to learn how Lightroom works and to be comfortable in it. It is an extremely powerful piece of software but it has a pretty steep learning curve to get the most out of it.

RAW files will require some work in post processing

The second hindrance to RAW adoption is that the initial file rendering in the RAW processor is flat. People often complain that when using RAW their images look much worse than the in camera generated JPEG file. While the initial RAW files are flat, some simple edits can pull out all the detail and make an image pop. For example, on my Sony a7r III there are typically 8 edits that are made to almost every image that bring it to life:

White Balance: in natural light, Sony usually gets this right with only small tweaks needed in temperature or tint.
Exposure: +0.3 Sony consistently under exposes images by 1/3 of a stop.
Contrast: +5
Highlights: -0.4 to -0.6 depending on image
Shadows: +0.4 to +O.6
Whites: +0.15
Blacks: -0.20
Vibrance: +15

Once I apply these edits on a Sony RAW file I usually have a good baseline for additional tweaks.

Adobe DNG Standard

So what about DNG? DNG is Adobe’s open standard for RAW files or “Digital Negative”. For a few years I switched over to DNG after reading this article on Photography Life. In practice it sounds great to have a universal standard, but DNG really never gained much traction  so I decided in 2017 to convert back to storing standard Sony RAW files as my digital negatives.

Don’t be afraid! Make the switch today to shooting RAW. I promise it will be a worth while investment of your time!

Next Tip: Photography Tip: #3 Invest in Learning Editing and Post Processing Skills

Categories
Photography

Photography Tip: #1 Only Show Your Best Work

Photography is one of my passions and hobbies. This post is the start of a running series of tips and tricks on photography that I have learned over the years to improve my work. I am by no means a professional, but hopefully these quick tips will help you take and share better photos. If you have a specific topic you would like me to cover or have a question leave a comment below. You can always view my albums on SmugMug

Be Ruthless with Selection

My first tip is the one that I think has helped me more than anything else in the last 10 years. Only show your best photos and be absolutely ruthless when evaluating the quality of the photos you have taken.

Here is a secret, I take a lot of bad phots! Yup, they are out of focus, under exposed, over exposed, bad composition, etc. The trick here, is I make sure nobody ever sees when things have gone wrong. On a typical photo session, I am shooting at a ratio of 1/20. For every 20 photos I take I will end up with 1 keeper that will be edited and published. With that said, I am always trying to improve my skills and lower this ratio but a big part of learning is making mistakes and seeing what went wrong.

When evaluating photos as part of my workflow, I am only looking for “Picks” (Lightroom shortcut P). No stars, no ratings, no deletes. Just a simple question: would I be proud to publish this photo and would people have an interest in looking at it. Once I do a first full pass and hit all my selects, I then step back and look at how the album has come together.  I will then do a secondary pruning to “Unselect” (Lightroom shortcut U) images. I will remove photos that are too similar and delete what I think are the weakest images in the album. Now I hit the Lightroom develop module and start editing! Once all the edits are done, I do a final review and make sure I love each of the images and how they tell the story of the full album. There are usually only a handful, if any unselects at this stage. I then hit the publish button!

The only time I make some compromises on image quality is when I am documenting events like my daughters graduation.

The lighting was terrible and we were seated in the back and I just had to make the best of it as my daughter only graduates pre-school once 😀. The other exception, is when I am in documentation mode on my iPhone. For these images, I am just snapping pics to capture moments. I am not editing them and just throw them all in a single album each year to serve as a timeline of the year.  They also usually include a lot of selfies like the below shot with Brendan:

Next Tip: Photography Tip: #2 Shoot Using the RAW File Format

Categories
Personal Finance

New Podcast Friends on Fire

My friend Maggie and her co-worker Michael have started a new podcast called Friends on Fire. You can listen to the first couple episodes here.

FIRE or Financial Independence Retire Early is a topic that I am passionate about but have not covered on the site yet.  I intend to dedicate a number of future posts to the FIRE movement as part of my personal finance topics.

In the mean time, check out what Maggie and Michael have to say about Friends on Fire!  I have enjoyed listening to the first couple episodes on my commute this week.

Categories
Personal Finance

A Health Savings Account or HSA is a Great Financial Tool

I don’t have too many financial regrets, but one is that I did not not take advantage of a Health Savings Account or HSA earlier in my career. For most of my 20’s and early 30’s I blindly signed up for a traditional co-insurance health plan during open enrollment. These “Gold” level plans offered low deductibles, typically $1000, but with high premiums of between $700-$800 per month. The low deductible is good for keeping variable expenses low but the premiums over a full year add up to a significant expense.  When I look back at the amount of money the insurance paid out, compared to the premiums paid in I was wasting a lot of money!  These co-insurance plans are good for people with ongoing medical costs, planning a significant surgery or birth of a child, or anybody who does not have an emergency fund to cover an unexpected $10,000 medical bill.

I am very fortunate that me and my family are healthy with an emergency fund so the co-insurance model of low deductibles and high premiums does not make sense for us. This is where the Health Savings Account comes into play. The first thing to understand is that Health Savings Accounts are only available if you are on a high deductible health plan. These plans flip the model where your monthly premiums are lower in exchange for much higher deductibles and maximum out of pocket costs.

How the numbers break out

Our family’s high deductible  plan looks like this:

Annual premium: $5,976
Annual family deductible: $6,500
Annual family max out of pocket: $12,00

Compare the above with the low deductible plan:
Annual premium: $9,750
Annual family deductible: $1,000
Annual family max out of pocket: $5,000

As you can see, on the high deductible plan you trade about $4,000 in lower premiums for a $5,500 increase in the deductible and a $7,000 increase in the max out of pocket. By taking on some of the additional risk we are able to keep more money in our pocket.  If we stay relatively healthy this trade off will work out in our favor.

Combining the high deductible plan with an HSA

Once you are on a high deductible plan, you are eligible to participate in a Health Savings Account. The HSA allows you to set aside pre-tax earnings today for qualified medical expenses in the future. The maximum family contribution in 2020 is set at $7,100. In addition, most HSA’s will allow you to invest these funds to further grow your account. Does this mechanism sound familiar? Yes, essentially it acts just like a 401k but rather than helping to save for retirement it is helping to save for medical expenses. The tax benefit, combined with the power of compounding make this a very useful tool for financial planning. As we get older, medical expenses are foretasted to become a significant portion of our monthly expenses. Saving now for these expenses, can really help offset the burden of medical costs later in life.

In a practical sense, as you build funds in your HSA you now have funds to cover your high deductible and max out of pocket for a major medical event. In closing, if you are healthy with an emergency fund, take the premium savings of a high deductible plan and invest them in a Health Savings Account to maximize the benefit of tax savings and compounding. You can read more on this topic at healthcare.gov

Categories
Technology

Updating the Site – Current WordPress Setup and Hosting

I was recently inspired to dust off this site and try and get into a regular cadence of posting.  About 6 months ago, this site got compromised as I had not remained diligent on updating the WordPress installation and plugins with the latest security patches. I was super busy at work and did not have time to figure out what was wrong so I just deleted the entire site until I could fix it. A couple weeks ago, I started with a fresh install of the latest version of WordPress 5.3, uploaded a backup copy of the database (backups are important!) to restore the existing content. WordPress does a good job of making this easy and I had the site back up and running pretty quickly.

Hosting – BigScoots.com

I use BigScoots.com for hosting the site and have been pretty pleased with the support they provide. I am on a basic shared hosting plan and once I implemented a few WordPress performance improvements the speed of the site is pretty good.

CDN – Cloudflare

Cloudflare is a reverse proxy service that offers a free tier that works well for personal sites like this. I used to use MaxCDN for standard CDN services but they moved to a per month subscription service so I am trying out Cloudflare to see how it performs. So far so good 😊

WordPress Plugins

I am only using a few plugins right now but some of them are very important:

  1. UpdraftPlus – Backup/Restore
  2. Wordfence Security
  3. Jetpack by WordPress.com
  4. LiteSpeed Cache
  5. WordFence
  6. Yoast SEO
  7. MonsterInsights
  8. Cloudflare
  9. Google Analytics for WordPress by MonsterInsights
  10. Akismet Anti-Spam
  11. Classic Editor

I will do a detailed post in the future on why I am using each of them and the pros/cons of each.

WordPress Theme – Twenty Twenty

I installed the default twenty twenty theme and so far I am liking the clean layout and responsive design. I made a few small tweaks such as removing the background color but that was about it. I might try a few others but so far this is working for me!

 

Categories
Personal

Happy New Year! 2019 Year in Review

2019 was a great year with lots of milestones and events to celebrate.  The speed at which our family continues to grow amazes me.  At the same time, it also scares me!  Many of my older friends tell me how quickly this time passes and before you know it your kids are off to college.  While having two young children presents its own set of challenges, it is a good reminder to cherish these times we have as a family.

2019 Family Review

Brielle’s 5th Birthday

We started out the year celebrating Brielle’s 5th birthday in January with a small party at our old house with some of her friends.

Spring

In April and May we were focused on buying our new house and moving from Mableton to East Cobb in Marietta

In May, Brielle graduated Pre-K from Kids R Kids in Mableton.

Summer Break

In June we went to Boston for our Niece’s birthday. The kids love getting to see their cousin and a lot of fun is had by all!

In July we went on a vacation to Hilton Head Island with the Forester family.  This is the 3rd year we have done this and it is something that we look forward to each year!  We are already planning Hilton Head 2020!

After Hilton Head, I headed out on a long around the world work trip while Crystal took the kids to Seattle to see her friend Tricia and her family.

Back to School

After a whirlwind summer with lots of travel, it was now time to go back to school with Brielle starting Kindergarten in Ms. Menear’s class at Mt Bethel Elementary School and Brendan starting pre-school at Mt Bethel Christian Academy.

In September we went to Blue Ridge Lake for a weekend to stay with my friend Greg and his family.  The kids loved the lake and even got to take their first ride on a jet-ski!

Fall

Brielle joined her first soccer team “The Fire” and had a great time playing this season.  She scored her first goal and is already signed up to play again in the spring!

For Labor Day our community hosts a “Cardboard Boat Regatta” that is a lot of fun.  We entered with “Pinkatastic” and won the peoples choice award for best boat!

No year in review could be complete without an official school photo!  I look forward to stringing these classic pictures along for many years to come!

We celebrated Brendan’s 3rd birthday with a dump truck cake and some candles that he really enjoyed blowing out!

In September we headed back to Boston to meet my new niece Maeve who was born this summer. We also made a visit to the Canobie Lake Amusement Park .

Halloween

After coming back from Boston, the kids were ready to celebrate Halloween for the whole month of October. It started with our Halloween Cards and T-shirts and continued with our family themed costumes.  This year’s theme was pirates! Arggggggg!

Two days after Halloween Mt Bethel hosted their 33rd annual fun run.  Brielle did great and got 4th place in her grade with a time of 4:17 for the half mile!

The Holidays

With Halloween behind us, the kids were excited to start thinking about Thanksgiving and Christmas! We got our holiday photo shoot done early this year so we could get our cards out with our new address:

Crystal continued her tradition of The Adventures of Snowflake our  Elf on the Shelf.  Her creative ideas keep the kids mesmerized each morning looking for her and what she could possibly be up to!

No Christmas season would be complete without a visit with the big guy himself.  We had two Santa visits this year, one with Atlanta Swim and the other in our neighborhood

We had a great Christmas that included some matching Carter’s family PJ’s!

2019 Work Review

Managing the International Business for Carter’s kept me busy this year. I had 9 work trips: 3 domestic (all to New York) and 6 international trips flying a total of 140k MQM‘s on Delta. This was the 3rd year in a row that I made Diamond Medallion status. Here are all the places I went:
1) 2/26 New York
2) 4/10 New York
3) 4/13 Santiago , Chile
4) 5/20 London, UK
5) 6/08 Jakarta, Indonesia with additional stops in Bangkok , Thailand and Seoul, South Korea
6) 7/15 Riyadh, Saudi Arabia with additional stops in Dubai, UAE; Pune, India; Delhi, India; and Shanghai, China
7) 8/7 New York
8) 9/12 Moscow, Russia with additional stops in Warsaw, Poland; Berlin, Germany; and Cologne, Germany
9) 10/8 Sao Paulo, Brazil

We wish everybody a happy and prosperous 2020!  Onto the next decade! 

Categories
Personal

Christmas Day

The kids (and parents) did not get much sleep last night but they had a great time today opening some presents and getting to play with their new toys. It helps when it is 65 degrees and sunny in Georgia today! Big items for Brendan included a “big boy” bike and a “choo choo” train.  For Brielle, it was a “big stuffy unicorn” and a bean bag chair for her room. They also both got walkie talkies which were a big hit

After we had lunch the kids headed outside with a few of their friends to ride bikes . Brendan is working on his balance bike skills!

Merry Christmas from the Knight Family! We love the Carter’s matching Santa jammies!

Full Album on SmugMug

Categories
Personal

The Magic of Christmas Eve

Brielle and Brendan could barely contain their excitement tonight on Christmas Eve waiting for Santa! It is such a fun evening when the kids are this age. They opened up their gifts from Snowflake which were matching Santa jammies from Carter’s of course 🙂

They put out cookies, milk, and M&M’s for Santa:

And we could not forget about carrots and water for the reindeer. They decided that the back deck was a better landing pad for Rudolph instead of the front porch! Good thinking!

Full Album on SmugMug