Author: John P Anderson

Living in San Diego. I enjoy learning about environmental issues and connecting with good people that want to make the world a better place. Cheers!

Latte Investing (Becoming an Everyday Investor)

The term “Latte Factor” was popularized by David Bach in his best-selling book, The Automatic Millionaire. The concept highlights how small purchases everyday add up to big money over time – in this case exemplified by a daily $5 latte. It’s a specific example of how opportunity costs work. When you use your resources for one thing you are giving up alternative uses for that money. Per Webster Merriam the formal definition follows.


Opportunity Cost

– the added cost of using resources (as for production or speculative investment) that is the difference between the actual value resulting from such use and that of an alternative (such as another use of the same resources or an investment of equal risk but greater return)

https://www.merriam-webster.com/dictionary/opportunity%20cost

Bach’s book popularized the art of slamming Starbucks purchases as extravagances for spendthrift millennials that have no long-term financial sense. It’s a good concept, and the math works. If you take the $5 a day and instead put it into low-cost index funds or other investments the accumulation over time is enormous.

Here’s a July 2018 example post, using the $5 latte example, from US News. Over 50 years, $5 a day invested across the stock market would yield you an $800,000 portfolio balance. It’s a great, powerful example of how returns compounded over years can add up to big money. The big missing piece of getting these returns, however, rests upon actually investing the $5 a day. Opportunity costs only really matter if the alternative uses are uses that one will actually take. You may not like Starbucks at all so you never spend $5 a day on coffee, or you may have incredible willpower and forego your treasured cup of mocha java daily for years on end. Unless you take those individual $5 savings and everyday invest them you will not see the $800k pot of gold at the end of the 50-year rainbow. If the money sits in your checking account and is then used for a trip to Disneyland, or a shopping trip, or the monthly dozen streaming service bills it has not been saved, nor invested. It’s been spent on a different consumption use. Unless one is very diligent or budget-focused it is hard to monitor each dollar and actively redirect from spending to investing.

I had the Latte Factor in mind when I was considering how to be a better, more consistent investor about a year ago. It was shortly after the New Year and resolutions were on my mind. I decided to use the idea of the Latte Factor in reverse – by starting with investing and making a daily investment the priority. My thinking was that if I made the $5 investment a priority each day, and automated it I would be embracing the investing side of the Latte Factor which is the most important part. Getting your money to work for you is the goal, not self denial at the coffee counter. They are both part of the equation, flip sides of the coin, since we all deal with finite time and money. Although they are related, I view the investment side of the coin as more important than the saving side. And knowing myself, giving up my daily coffee just isn’t in the cards.

I used my existing Vanguard account to create a recurring weekly investment for each day of the week. (Since you can’t create an automatic investment on a weekend day I doubled up on a couple of week days to have 7 total investments a week.) Here’s my current latte investing setup – there’s an additional 8th weekly transfer to a money market fund as an emergency savings additional goal.

I’ve blanked out the amounts above as I don’t think it’s relevant and will depend on each person. For you, the $5 a day may be a great start. Perhaps you earn a lot more money than I and $500 a day would be a better fit. The important bit is to start, and automate, your investing so that you remove the need for active attention and willpower to ensure it happens. This is likely already the case if you have a 401k or other employer investment plan – you set it up once and rarely think about it again. Adding an investment plan for yourself individually can be a great complement and remind you that your financial future is ultimately in your hands, and needs to be on your mind.

In addition to the power of compounding, I’ve enjoyed the psychological element of having a daily investment habit. When I’m winding down at the end of the day I can tally a small win, every day, that even if I did go out for coffee, or dinner, or booked an expensive trip I was also investing for the long-term. That little bit of positive reinforcement and encouragement has been meaningful to me. My wife and I both set up our own daily investments in this vein. It’d be a bit cleaner and simpler to just lump the investment dollars together and do it once a day instead of twice. However, just as you can’t have another person eat well for you, or do your daily exercise routine I find it important for us each to be invested in the process and have a daily win.

Our first year of latte investing went well, and with the calendar turning over we took a few minutes to discuss and update our daily investments. Things have been going pretty well, so we were able to increase our daily amounts a bit. Maybe in the future we’ll need to decrease the amounts. Either way, I plan on continuing this daily habit to have our small daily money wins and to remind ourselves that everyday we are going to be investors. Hopefully, as the years go by, the returns will grow and our balances will accumulate.

Bean counter by trade, bean lover by nature, bean stacker by choice

I hope sharing this daily habit is helpful to you, and if you have ideas to share about building wealth for the long-term I’d love to hear them. Cheers.

The 80-80 Rule (Incremental Goals)

A friend recently described some dietary goals – eating less meat, being more conscious of food provenance, etc. – and added that he was “only aiming to hit 64% compliance”. Interesting. He added that he had got the idea from a friend and he was aiming to pursue his new food rules by following 80% of the rules 80% of the time. 80% x 80% = 64%.

I really like this idea and am dubbing it “The 80-80 Rule”. (Apologies if this already exists but after some cursory searching I couldn’t locate so am staking the JPA flag on this moniker.)

It seems human nature to lean toward binary outcomes when it comes to goals and habits – we win or lose, are good or bad, succeed or fail. This makes it hard to stick to ideals or goals we want to pursue. January 15th and after a night out we eat a Big Mac and boom – our resolution to avoid fast food in the new year is gone. I broke the rule, failed, and so may as well eat whatever for the rest of the year since I can’t stick to even a simple goal. Perhaps a more lenient take can allow us to incrementally pursue our goals and feel good about progress, even if it’s 64% instead of 100% compliance. After all 64% of 365 days is 234 days we’ve improved in whatever way matters to us.

Short-Term Rental Properties – A Few Useful Tools

So you want to operate a short-term rental for your vacation home, in-law flat, previous home, or other property? Sites like Airbnb and VRBO have made the idea of second home or investment property a reality for many. These sites make the marketing and management of a property much easier than in the past. However, there are a number of additional tools and considerations to take into account.

We recently stayed at an Airbnb in South Lake Tahoe. It was great and a day at Angora Lakes was a highlight of our trip. (Photo is of Fallen Leaf Lake.)

Here a few recommendations for getting your short-term rental up and running smoothly.

Open a Checking Account (and potentially Credit Card) – If you are running a rental property, you are operating a business and will need to report the earnings and expenses on your tax return. Open up a checking account at a minimum to make tracking your net income easier. You may also want to open a credit card to earn rewards or cash back, depending on the amount of activity you have.

Check (And Modify As Needed) Your Insurance Policy – You may need to get an additional or different insurance policy for the property. There are a number of insurance providers that offer policies for short-term rentals, I use Foremost. Additionally, you may want to add an umbrella policy or consider setting up an LLC to address liability exposure.

Utilize Additional Tools – I currently use the following add-on tools for my Airbnb listings.

  • BeyondPricing – This tool adjusts the nightly rate to account for prices in the area, occupancy rate, seasonal factors, etc. There are a number of similar tools but I’ve been happy with BeyondPricing. The company charges 1% of gross for the service but I’ve found that just being able to pick up higher rates for large events like Comic-Con or conventions pays for itself.
  • Smartbnb – I really like this tool for managing multiple properties and team members. You can set up automated messages for check-in, check-out, etc. You can also set up text reminders for your housekeeper, manager, or other service providers.

Utilize Service Providers – Depending on your situation and goals, it may be well worth it to hire a property manager for your short-term rental, especially if you don’t live in the area. Guests often need in-person assistance for various needs, repairs, or other reasons. You may also want to consider a housekeeper unless you’re typically in town and have a flexible schedule to clean yourself.

Hosting on Airbnb for over a decade has been a great financial help for my family. I hope these suggestions are helpful to you and if you’re looking for more specific advice please contact me and let me know. Cheers!

A sample of Airbnb listings on the website

Kimball Elementary – Great School Crosswalk Example

This crosswalk at the entrance to Kimball Elementary School in National City has a lot of elements that make it great.

  • Marked (painted) crosswalk – many crossings don’t have even the basic painted lines that indicate pedestrians will likely be present and crossing
  • Raised crosswalk with additional markings – The raised crosswalk functions as a speed bump, reducing through traffic speed, and on the raised portion includes additional markings to highlight the presence of a painted crosswalk.
  • Bike lanes – reduces the vehicle lane width, and creates a space for kids arriving at the school or riders passing through
  • Extended parkway – Street parking has been removed adjacent to the crossing and replaced with trees and grass. The reduced width reduces through speeds, and the removal of parked vehicles increases visibility – particularly important for children that are generally shorter in stature.

Would love to see the sort of improvements present at this intersection become a standard at all schools in the area. Nice work, National City.

Saturday Reading Roundup

Yeehaw!

Wanted to share a few articles and podcasts I enjoyed this week. If you’re looking for some informational content over the weekend check it out.

  • Same sex sexual behavior in the animal kingdom (Economist article) – I found this short article very interesting, especially the angle of human bias in the research world skewing prior studies.
  • Investing advice for new investors (Stacking Benjamins podcast) – I really enjoy the Stacking Benjamins podcast and this episode had good, functional advice and included one of my favorite panel members on the show – Paula Pant. Recommend subscribing if you have a general interest in investing.
  • Capitalism is a blessing debate (Intelligence Squared podcast) – This podcast is debate style, typically with four participants. I enjoyed this episode although (spoiler alert) capitalism loses because Marx is way cool. I was on team capitalism and thought their arguments were much better but maybe I’m not a real millennial snake person.

To close off this brief post, here’s my favorite photo I took this week. It’s an Oak tree in Balboa Park, part of the Bennington Memorial Oak Grove adjacent to Golden Hill. Oaks are awesome and palm trees, though associated with California due to sketch tourism marketing over the last century suck. They’re not even actually trees.

Have a great weekend!

10 Years Riding The Bus = $84,000 Saved

Sitting on the couch last night was chatting with the spousal equivalent (“SE”) about how NextDoor is awful. Cue a recent bus rider shaming post that really bothered me:

I had to remove the screenshot from Nextdoor as it was posted against Nextdoor rules. I wasn’t aware and apologize for the error. The remainder of this post has been unchanged.

We talked a bit and then realized SE has been riding the bus to work, or biking, for the last 10 years. Wow, time flies. Somehow, neither lice nor French whore encounters have been a problem. #praise

There are a number of reasons that transit SE likes to support and use transit:

  • Traffic congestion reduction (buses move far more people than the typically single occupant cars common in the US)
  • Cost savings
  • Reduced environmental impact
  • Social unity / exposure
  • Etc

On the cost savings front we estimated that over the last 10 years we saw approximately $84,000 of savings for our family.

  • $200 per month parking x 10 years = $24,000 (Comparison from co-workers)
  • $6000 per year vehicle cost x 10 = $60,000 (About 1/3 less than the average cost per year from AAA since Cali is hella expensive but we’re cheap. Results may vary.)

SE bus cost is covered by employer so if paying the $72 monthly out of pocket would reduce the savings by $8,640 for a total 10 year savings of roughly $75,360.

We took the savings and went on a fat family trip to Vegas and Hawaii which was awesome. Just kidding. We put most of it into index fund investments to grow and throw off dividends until the end of our days.

Wanted to share our public transit savings story in case you’re also interested in saving the better part of $100k every 10 years and putting it to work for you instead of sending it out the exhaust pipe.

Bikes and scooters are fun.

Free Rides with Jump (Uber) Bikes and Scooters – New Yellow Icon Drop Zones

Jump is a company owned by Uber that operates dockless electric scooter and bicycle rentals in a number of cities. I’ve been riding their electric bikes regularly for the past few months and they are the best dockless bicycles I’ve tried. If you are in a city they operate in I highly recommend trying them out – they’re fun, easy, and fast.

A couple of weeks ago I noticed a new feature on the Uber app (which is the app used to rent the Jump bikes and scooters). The map that shows available bicycles (red) and scooters (green) now had yellow icons as well. The below map of San Diego shows this:

When I clicked on the Yellow Icon for more information I was greeted with a message that any trip completed in this “drop zone” would be free and potentially also credit my account with reward points. I was skeptical but took a regular trip and parked it in a drop zone. When my billing receipt for the trip came the total cost was $0.00 instead of the current pricing of $.15 (15 cents) per minute. Awesome! I haven’t been able to figure out if I’m also accruing reward points, or what those points are, to date.

The information in the app is worded a little confusing but based on my experience of about eight trips ending in drop zones over the past two weeks they have all been free. The drop zone locations have remained in the same places as far as I can tell, which is convenient since there’s one a few blocks from my home.

Hope this information is helpful and that you can check out a (free) Jump ride soon. Cheers!

Real Estate Liability Protection – “The Protection Pyramid”

I wanted to share some thoughts about liability protection in real estate. It’s a frequent topic if you’re interested in investing in real estate and is often centered about how best to hold property – in an LLC, corporation, etc. This is certainly a point to consider but there are many other ways to go about addressing liability and working to reduce your risk. Following is a summary of the biggest areas I’d consider.


I’ve tried to build this pyramid model with the base being the broadest type of liability protection and getting more specific going up. Not every piece of the pyramid will make sense for every property or situation – the intent is to have a comprehensive set of options to consider.

  • Legal
    • Entity Form – Holding a property in an LLC, S Corporation, or other entity form can be considered to separate assets from other assets or investment assets from personal ones. Creating an entity will likely include annual fees and filings with the state. There are different tax and legal elements to consider when selecting a form.
    • Revocable Trust or Will – As part of estate planning a revocable trust can be considered in addition to holding property in an entity or directly.
  • Insurance
    • Property Insurance – Property insurance is typically required if property is purchased with debt and is likely a good idea in case of accidents.
    • Umbrella Insurance – Umbrella insurance goes “on top of” property insurance to provide additional liability for incidents not covered by property insurance or exceeding the insurance coverages.
    • Specialty Insurance – Earthquake, flood, or other insurance policies that may make sense depending on the property location.
  • Operations
    • Property Management – Hiring a professional property manager may be a good idea to make management less time intensive and to have a professional on your team. Additionally, this may reduce your liability related to tenant relations and selection.
    • Diligence
      • Due diligence (before purchase) – Inspections of the property before purchasing can identify potential issues in advance to address or avoid. A general inspection as well as specific inspections for foundation, roof, termites, radon, and other areas can be considered.
      • Ongoing diligence – Annual inspections of the property with an eye to potential water damage (roof, plumbing), safety equipment (smoke detectors, CO detectors, fire extinguishers) can identify current or future concerns to address and avoid ongoing damage.
      • Tenant screening – Considering criminal background, credit history, and other criteria when screening tenants can reduce liability.
  • Equity
    • Equity Stripping – To reduce the amount of value that is potentially at risk in a property you can “strip out” the equity in the property by refinancing the property and taking cash out or through other means.

I hope this set of liability considerations is helpful to you and best wishes in your real estate investing!

A property currently for sale in San Diego (from Redfin.com)

Note: The content of this post is for informational and discussion purposes and is not financial or tax advice. Consult with an advisor before relying on this or any information.

Raising An Investor

Raising children entails a lot of trial and error, and hoping that you aren’t screwing things up too much along the way. As our kids have gotten older we are moving into new subject areas, one of which is money. We want to expose our kids to good money habits while also giving them agency and discretion. Investing has been an area that has been going well so far so I wanted to share our experience with others in the same boat.

We set up an investment account at Betterment for each of the kids when they were born and have put in $25 a month since then. Now that the kids are old enough to be involved there is an account history and returns that we can go over together and learn together about expenses, how returns from appreciation and dividends work, and that there is risk involved in investing. Although we primarily use Vanguard for our own investments I like the aesthetics and diversification into multiple index funds / ETFs that Betterment makes more automatic – it seems to connect with the kids better and is more straightforward for them to understand.

Here’s the actual performance of one child portfolio over the past few years. The right graph includes a comparison to the S&P 500. Betterment currently charges a .25% management fee on top of the fees for the funds invested in.

[Note: We have chosen to hold the investment accounts for each of our children in our name so that we have control of the funds until we decide to give over full control. We’ve done this for reasons related to age and maturity, impact on college scholarships, and other considerations.]

Now when the kids receive some money for a birthday or we cash in the coins in their artisanal hand-crafted wooden banks we let them decide what to do with it – spend it, give it away, put in the bank, or invest in their Betterment account. It’s been fun and over the past year they’ve mostly chosen to invest their money, roughly 80% of their “earnings” going into their respective Betterment accounts. We sit with them at the computer but let them use the mouse, type in the contribution and notes, etc.

Here’s the current default allocation within Betterment for one of our child accounts, at a 95% stocks / 5% bonds allocation.

We’ll see how it goes in the future when there are more dollars at stake and more competing options vying for their attention and funds. From the early returns it’s been a simple and effective way to introduce investing for our family.

You can check out Betterment at: https://www.betterment.com/

Calculating compound growth rates like a boss (baby)

Small Tax Refund? Take 5 Minutes To Make It Larger in 2019

It’s tax filing season in America and given the new tax laws that were effective in 2018 there’s a lot of news about filings and refunds. Many headlines are making hay of the smaller tax refund amounts seen so far. [Note: The amount of your refund is not the amount of tax you pay.]

Here’s an example article from yesterday from Forbes:

“As Tax Season Rolls On, IRS Still Reporting Fewer Returns & Smaller Refunds“

If you are an employee and receive a W-2 with your wage earnings at the end of the year you can take action now to increase your refund in 2019.

Form W-4 is the IRS form you fill out when you start a job and it tells your employer how much to withhold for taxes from your paycheck. It’s a short, simple form but has a big impact on how much of your paycheck is paid to the government during the year.

The form is mostly your personal info – name, SSN, address. Easy enough. The important parts for the amount of tax withholding are Line 5 and Line 6.

Line 5 – How many allowances you’re claiming. Basically how many people will be on your tax return, usually how many people are in your household. The smaller this number is, the larger the taxes withheld. Entering 0 yields the largest withholding.

Line 6 – You can choose an additional amount to withhold on top of the amount determined by the Line 5 Allowances. $100, $500, or whatever number you want to enter will increase your tax withholding. The bigger this number is, the larger the taxes withheld.

If you want to increase your tax withholding, and most likely your tax refund, in 2019 simply complete Form W-4 and send to your company payroll or HR department.

There’s a debate about whether receiving a refund is a good thing or bad thing. Many, like this Motley Fool writer or this article from US News, think refunds are bad – an interest free loan to the government. I mostly sit on the side of refunds being a good thing. This is primarily because as a CPA I’ve seen people have to deal with a $5,000 tax bill as well as a $5,000 tax refund. It’s typically much easier to deal with a large windfall rather than a large amount due. I personally like to have high withholding because it helps to cover taxes due from side hustle / self-employment income that can be tedious to separately calculate and remit during the year.

However you feel about refunds, if you do want to alter your withholding the simple steps above should help you do it. Cheers.

Note: The content of this post is for informational and discussion purposes and is not financial or tax advice. Consult with an advisor before relying on this or any information.