👋 Happy Sunday! Welcome to the WalletBurst newsletter for the month of January 2024.

🚗 How Much Is That $70,000 Truck Costing You? by a WealthOfCommonSense

• Before you go out and buy that expensive new car with financing, consider the opportunity cost of driving something more affordable and investing the difference in the stock market.
• The chart below shows Ben’s example of how much your money could grow if you bought a SUV or smaller pickup with financing instead of a $70,000 pickup, and then invested the difference in monthly payments in the stock market. Over 30 years, this could be worth $600,000 to $800,000, showing that the opportunity cost of an expensive vehicle is high, especially for young people.

📈 Should You Invest in Stocks at All-Time Highs? by Nick Maggiulli (OfDollarsandData)

• With US stock markets hitting all time highs recently, many investors may be wondering: is now a bad time to buy stocks?
• In the short term, investment returns are actually higher following all time highs compared to all other times, but lower over longer time frames. Nick compares the strategy of investing following all time highs with buy-and-hold, and over the long term the buy-and-hold strategy wins. No matter how smart you are, you can’t time the market consistently!

🪑 The 3-Legged Stool of Retirement by The Retirement Manifesto

• Retirement is a game of tradeoffs, just like anything in life. A metaphor for the tradeoffs around retirement is a three-legged stool, with the three key tradeoffs being time, money, and health.
• Ultimately, health and time are the scarcest resources in our lives, and these are things that we can never get back. So when forming your FIRE plan, always invest in optimizing your health, and consider that chances are, money will be the last remaining leg on your stool.

🏠 Ratio of home price to median income

(Source: longtermtrends.net)

📺 Side hustle idea: hanging TVs

My monthly spending

I spent $3,348 this month. Car registration of $360 in CA hurts 😕.

Get my Personal Budget Template for free here

New on WalletBurst.com

• How I lived on $39,000 per year in 2023 as a 28 year old engineer in the SF bay area
• Health Savings Account (HSA) Growth Calculator

A few years ago, I wrote about how I lived on $30k per year in the San Fransisco bay area with a 65% savings rate. I’ve experienced some lifestyle inflation since then, and after closely tracking my monthly spending over the course of 2023, my spending has crept up to a whopping $39,000 per year.

With its exorbitant living costs, the SF bay area is the poster child for Very High Cost of Living (VHCOL) areas. For example, in Santa Clara county where I live, a $96,000 annual salary is classified as “low income” for a single-person household.

I see lots of content across the internet about how living in the SF bay area is so crushingly expensive, and I wanted to use my situation to show that by spending with intent, a small budget can go pretty far even in one of the most expensive metro areas in the USA. In fact, as rents have crept up across other major metros in the USA, I believe that now more than ever the SF bay area has one of the most favorable deltas of income to cost of living for young professionals without kids.

Let’s start off by taking a look at my expenses over 2023.

My Expenses

Over 2023, I closely tracked my spending on a monthly basis using my Google Sheets monthly personal budget template. I hooked up all of my financial accounts in my Empower (formerly Personal Capital) dashboard, used the Cash Flow tab to view an aggregation of all my transactions, and then manually entered them into my budget template so that they are categorized correctly.

Overall, I spent a total of $38,701 in 2023, with the breakdown by category shown below.

Rent

Although my largest line item by far is rent + utilities at $1,400 per month, this is still well below the market rate for my area, and it has the biggest impact on keeping my spending low. My unconventional setup is a converted studio apartment above my landlord’s garage in Mountain View near the Google HQ.

It has everything I need as a 20-something male: my own entrance, restroom, and a small kitchenette with fridge, sink, induction stove, microwave, etc. It’s a short bike ride to my office for work. Yeah, I won’t stay here forever, but for this phase of my life it gets the job done. It’s simple, close to my work, and allows me to save and invest aggressively for the future.

Food

My food spending was under $350 per month on average. How so low? I’m very fortunate that my work provides free lunch (a common benefit offered by tech companies in the area) and I can also get free dinner if I stay past 7pm, which I do most days. This means that once the weekend rolls around, I’m happy to cook at home. On top of that, my girlfriend and I do most of our grocery shopping at Grocery Outlet, Costco, and Trader Joe’s, and don’t eat at restaurants all that often.

I also have an Amex Gold card which, as part of its $250 annual fee, includes a $10 monthly Uber Eats credit and $10 Grubhub credit that I typically use to pickup food at fast-casual spots like Chipotle.

I gave up alcohol about a year and a half ago, and cutting this out has both boosted my health and put more money back in my pocket. I’ve since replaced drinking with billiards as a social activity, which has been a lot of fun.

Travel and a new car

In April of 2023, I bought a gently used Honda CR-V in cash for about $24,000 to replace my aging 2007 Honda Accord. This is the only expense that I did not include in my 2023 spending breakdown. Perhaps in 2024 I’ll estimate the depreciation and amortize it as a monthly expense. Anyways, as I covered in my 2023 year in review, buying a new vehicle enabled me to do a lot of road trips in 2023! In fact, in the 10 months that I’ve owned my CR-V, I’ve logged over 18,000 (mostly highway) miles on it.

Here are some highlights of my travel destinations in 2023:

• Grand Canyon (2x)
• Las Vegas (2x)
• Tucson, AZ
• Lake Tahoe (2x)
• Yosemite (2x)
• Bryce Canyon, Utah
• Flew out to Colorado
• Mt Whitney in the East Sierra
• San Gorgonio peak in Los Angeles
• Flew out to Wisconsin
• Flew out to Florida

Living on the west coast enables tons of amazing road trip options, which are usually lower cost than flying somewhere and renting a vehicle.

A few big / unnecessary expenses

I had a few unlucky surprise expenses over 2023 (which are accounted for in my total spending number) including:

• Flat tire: $310
• Windshield replacement: $500
• ER visit: $3,000. I ended up being fine. I was able to put this on a zero interest rate payment plan over 18 months.

In addition, I bought a used mountain bike for $800, which I’ve been having a ton of fun riding lately.

My Income and savings rate

As a senior mechanical designer engineer, my base salary in 2023 was $159,000. I do also earn RSUs and an annual bonus on top of this, but I’ll leave them out for the sake of calculating my savings rate. Using the Smart Asset income tax calculator, my after-tax income is $114,000 given a maxed out 401k contribution of $22,500. Including my employer 401k match of $6,000 brings my total annual income to $120,000. Now when we input my $120,000 income and $39,000 expenses into my savings rate calculator, we can see that my savings rate in 2023 was about 67%. Not bad! Even if I was starting with zero net worth, this savings rate would put me on track to reach financial independence in about 10 years.

Conclusion

To wrap up, I spent under $40,000 over the course of 2023 living in Mountain View, CA while still doing a lot of domestic travel and covering some big unexpected expenses. I recognize that having kids will change my budget in the future quite a bit, and I won’t be in this “living in a studio” phase of life forever. But whether you’re single or have a family, I believe that focusing your spending on things that make you happy and healthy while cutting out the rest is a simple formula for long-term happiness and wealth building.

Are you living on a budget in a VHCOL area? Leave a comment below, I’d love to hear about your situation!

👋 Happy New Year! I hope your 2024 is off to a great start. Here’s my newsletter for the month of December 2023 – it will be short and sweet.

🎧 The Best Advice from JL Collins by Mad Fientist 

Brandon (the Mad Fientist) distills all the best nuggets of personal finance advice from the infamous JL Collins into this podcast episode, including:

• The power of FU Money and why it may be less money than you think
• Why index investing is superior to active investing
• Why your house may not be a good investment

💧 Net worth vs liquid net worth by Nick Maggiulli (OfDollarsandData)

• Liquid net worth is the amount of cash you would have on hand after selling all of your liquid assets and paying off all of your debts.
• Liquid net worth is a proxy for how well you can handle financial risk.
• For financial peace of mind, your liquid assets are actually more important than your liquid net worth, because most debts do not have to be paid all at once.

🎧 Mr. Money Mustache on Life After FI: The Truth About Retiring Early in Your 30s (BiggerPockets Money Podcast)

Pete Adeney (aka Mr. Money Mustache) shares his experience after nearly 20 years of being early retired, including:

• What his typical day looks like
• Developing the “skill of spending” to bring in your early retirement point
• The right way to downshift from your day job
• How to handle stock market downturns

📆 WalletBurst 2023 year in review

• 2023 was my best year yet! 
• In my 2023 annual reflection, I share my general life updates, travel/fitness highlights, goals, and my overall spending for the past year.

My annual spending

Overall in 2023, I spent $38,701 total, while living in the SF bay area. Here’s a look at my total breakdown by category:

Get my Personal Budget Template for free here

New on WalletBurst.com

• 2023 Year in review

👋 Hey there and welcome to the WalletBurst newsletter for the month of November 2023.

🤔 How Safe is an 8% Withdrawal Rate? by Nick Maggiulli from OfDollarsAndData

• Dave Ramsey went viral recently when he responded to a caller on his show by saying that an 8% withdrawal rate was safe to use for retirement planning. He went on to say that the 3-4% SWR that is typically used by the FIRE community was ridiculous.
• Nick looked at all the 30-year periods from 1935 to 2022 and found that if you used an 8% withdrawal rate, the probability that you would run out of money after 30 years is 42%.
• However if you used a 4% withdrawal rate, the probability that you would run out of money after 30 years is 0%!

Surest path to wealth creation tweet by Kevin Dahlstrom on X.

📈 How to Become a Millionaire by Ben Carlson from a Wealth of Common Sense

• “For most people, your best bet is making more money over time, saving a decent chunk of that income, investing wisely and getting out your own way.”
• “Slow wealth is stickier because it doesn’t hit you all at once. You become accustomed to it in bits and pieces as opposed to experiencing a one-time jump that shocks the system. People appreciate slow wealth more than fast wealth.”

🎧 Coast FIRE Before 35 Years Old – Marriage Kids and Money (MKM) podcast

• Two guests, Anders Skagersberg and Josh Miller, share how they reached Coast FIRE in their early to mid 30’s with normal careers.
• They break down how they are using Coast FIRE to downshift their work lives, spend more time with family, and live a more stress-free life.

My monthly spending report

This month I spent about $2,800 total, living in the SF bay area. I spent less on travel and shopping this month than normal, but more on food. 

Get my Personal Budget Template for free here

New on WalletBurst.com

Nothing new this month…

👋 Hey there and welcome to the WalletBurst newsletter for the month of October 2023.

Will Social Security still exist when I reach standard retirement age?

• The Old-Age and Survivors Insurance (OASI) Trust Fund, which pays out Social Security benefits, is projected to be depleted by 2033. At this point, the social security system will have depleted it’s cash reserves, and going forward from 2033, the projected tax receipts will only cover 77% of scheduled benefits.
• It is likely that in the coming decade, at least one of three things will happen to keep the Social Security system solvent: payroll taxes will increase, the age of eligibility for social security benefits will increase, or benefits will be reduced.
• While social security benefits may be impacted in some way in the future, they will likely still exist to some extent, even for earners currently in their 20s like myself.

FIRE and Social Security bend points

• The topic of social security benefits is often overlooked in the FIRE community, where you typically see people making their FIRE projections independent of social security benefits.
• If you’re getting serious about early retirement in your 30s, 40s, or 50s, then it’s definitely worth your time to understand where your career earnings put you relative to the social security bend points. The bend points are the two points at which you receive diminishing returns in your monthly benefit once your career earnings total certain amounts.
• At a minimum, before retiring early you should have at least ten years or 40 quarters of social security contributions to be eligible for social security at standard retirement age.

📈 ssa.tools is an amazing free and simple-to-use online tool that you can use to understand your social security benefits based on your income history and plan into the future.

How Much is a 3% Mortgage Worth? by A Wealth Of Common Sense

• How much is a sub 3% mortage rate worth in a world where mortgage rates are now close to 8%? The answer is hundreds of thousands of dollars for the median home purchase.
• In 2021, the total interest paid over the course of the loan on a median house was just 41% of the purchase price, while in 2023, the total interest paid is now 116% of the purchase price!

Monthly mortgage payment in the USA (Source)

💰Average Net Worth by Age Analysis by Nick Maggiulli

• How are you doing relative to your peers financially? My guess is, since you’re reading this newsletter, you’re probably doing pretty well.
• Anyways, Nick does a nice analysis showing the difference between average and median net worth by age and then separates out household net worths by different percentiles.

My monthly spending report

I’ve been tracking my spending a bit closer lately and figured I’d share it here: this month I spent about $3,100 total, living in the SF bay area.

Get my Personal Budget Template for free here

👋 Hey there and welcome to the WalletBurst newsletter for the month of September 2023.

Here’s some of my favorite personal finance content from around the web this month:

⬆️ What to Do About These High Interest Rates? by MrMoneyMustache

Some thoughts on the current high interest rate environment by none other than MrMoneyMustache himself, including:

• Are index funds still the best place to invest your money?
• Is now a good time to buy a house?
• The meaning of the current inverted yield curve
• How to reduce the impact of high interest rates on your life

📆 The Evolution of Retirement by Ben Carlson from A Wealth of Common Sense

With inflation and rising costs nowadays, its getting more common to read claims that previous generations had an easier life. But reading the statistics (below) about historical retirement made me feel incredibly grateful for the opportunities that young people have to unlock financial freedom earlier in life. The concept of retirement, especially early retirement, is a very modern phenomenon. 

• “In 1880, more than three-quarters of men older than 65 were still in the labor force. It was nearly 50% still in 1950. Today, it’s more like 19%.”
• “For those 55-64, the labor force participation ratio was 95% in 1880.”
• “In 1940, only about 40% of the elderly had a net worth of $4,000 or more (roughly $87,000 in today’s dollars).”

🏠 Ranked: 15 of the World’s Least Affordable Housing Markets

(Source: visualcapitalist.com)

️ Sunny, Good Urbanism, and Affordable: Can You Have It All? by CityNerd on Youtube

CityNerd shares his analysis on the top cities that combine 3 qualities that many people value: affordable housing, urbanism (measured by bike, walk, and transit scores) and good weather.

Here were the top contenders with a population of larger than 500k people:

• Salt Lake City, UT
• Tampa, FL
• Albuquerque, NM
• Las Vegas, NV
• Spokane, WA

A zoomed-out look at the Federal Funds Rate (the Federal Reserve’s benchmark interest rate) since 1955 (source).

👋 Hey there and welcome to the WalletBurst newsletter for the month of August 2023.

💵 Paychecks, Not Portfolios: Why Income is the Key to Financial Success (OfDollarsAndData.com)

• “Tell me someone’s income and that will tell me more about their ability to build wealth than just about anything else.”
• “A high income by itself won’t make you wealthy, but nearly every person who is wealthy had a high income.”
• “Income level is more highly correlated with savings rate than any other metric.”

The cost to own vs rent has not been this far apart in most people’s lifetimes.

(Read more on Reddit)

️ CoolWorks.com: Find seasonal or year-round jobs in fun, outdoor places. Great for the Coast/Barista FIRE crowd, these jobs often cover your lodging and food on top of your pay!

• Once you’ve reached your Coast FIRE milestone, you gain the freedom to take jobs that pay less, but are more flexible and aligned with your interests so they don’t feel like work. 

• I came across CoolWorks.com and wanted to share it since it really aligns with the Coast/Barista FIRE strategy. Here are some seasonal jobs that caught my eye: see the northern lights as a guide in the Artic circle in Alaska, or work as a chef near Yosemite.

I had my 15 minutes of fame when one of my calculators got shared in this community note on Twitter 😁. The tweet was since deleted, but here is a screenshot:

New on WalletBurst.com

• Simple cap rate calculator

👋 Hey there and welcome to the WalletBurst newsletter for the month of July 2023.

A classic Twitter thread by @naval.

The speed of interest rate hikes since 2022 have put markets and the economy in uncharted territory. 

Read more on visualcapitalist.com

🎧 Mile High FI Podcast: Coast FI, Slow FI, & Pioneering Your Path to Financial Freedom

• Doug and Carl discuss the pros and cons of the various forms of financial independence including traditional FI, coast FI, slow FI with commentary about which approach may be best for you.  

A thought-provoking thread about entrepreneurship and retirement

🔥 Understanding Fat FIRE: The Comprehensive Guide to a Luxurious Early Retirement – by OfDollarsAndData

• Nick does a deep dive on Fat FIRE, including the benefits and downsides of Fat FIRE, how to achieve it, and how much you need to achieve it.

New on WalletBurst.com

• Cash-on-cash return calculator