Difference in Job Types

I've had jobs as a cashier, waiter, network cable installer, and test, software, electrical, project, and systems engineer.  There's a fundamental difference among them based on pay, education, and role.  Let's take a look at the pros and cons of the jobs in my life.

The minimum wage jobs were great for understanding the negative aspects of working.  As a cashier, the wage was not livable or respectable.  As such, customers, co-workers, and managers typically expected the least of me.  The job was designed to restrict almost every freedom.  My time was closely monitored, tasks were tracked, and socializing was frowned upon.  There's no room to grow responsibly, intellectually, or socially in these positions.  One function done repeatedly with no room to improve the job or yourself.  You're a cog.  I'd rank these types of jobs at the bottom of my desirability index.

As a fledgling Pizza Hut waiter, I made about $10-12 an hour.  Tips are a little inconsistent, but the monthly income is steady.  Plus, it's all cash.  A waiter's hourly wage is only $2.13 an hour.  The work comes in bursts and with lengthy downtime.  This allowed for a much more relaxed, sociable environment with a bit of free food.  At a higher end restaurant or as a bartender, these types of positions can pay more than a livable wage.

The job on the next rung, manual labor, actually seems somewhat promising based on hourly rate.  For a brief time, I installed cabling in empty buildings for a substantially higher wage around $20 per hour.  Climbing ladders all day is physically demanding and probably not a long term career option.  The drawbacks are similar to the minimum wage cashier job, but these jobs can completely deplete physical energy.  On a positive note, there's camaraderie and respect in hard physical labor and watching something being constructed also adds a bit of knowledge, awareness, and pride.  The money seems great except the work is infrequent, so the total earned can be more or less than a minimum wage job.  These types of jobs are a great short-term boost in income.

Most people fall into the trap of easy income.  As they age, the physical labor becomes a bit more difficult and they look for less physically demanding positions.  Their hours get reduced and they struggle.  To avoid this, the goal should be to engage in an intellectual endeavor that leads to a higher paying, growth-oriented employment.  That's where degrees and education come into play.  On my first internship, I made $14 an hour doing purely intellectual work.  Cultivated knowledge grew to a higher level of understanding, employment, and salary.  In many ways, these types of jobs are easier than being a cashier.  They provide mental stimulation and a future.  Some of my engineering jobs have been mentally draining, but that's atypical.  Often, there's time to socialize and focus on specialized knowledge.

Full time positions also offer perks and benefits that help protect from unexpected expenses and investing in your future.  [Unexpected Expenses]  Working remotely, being covered by insurance, matching bonuses for retirement accounts boost the base salary.  The real upside of engineering jobs is being able to sell managers on using or applying new technologies.  In every job, I became an expert on the essential parts and redirected my extra time towards the fresh and new methods.  Investing in myself, I'd pick a programming language or piece of software and run with it.  Once guru status was achieved, I'd ask for a raise or find a new job.  The jobs on the forefront of technology are sought after and in demand.  This equals more money and an earlier retirement.  After a handful of internships and full time positions, I've found a job that sticks with the flexibility to build a family and my future.

Thanks,
Dan

Electricity Usage and Cost

Passive monthly expenses often creep up.  Life gets a little busy and the effort of actively tracking costs diminishes.  Corporations love to incentivize the first year with special offerings.  They're banking on the consumer missing the increased monthly bill.  In some ways, I fell into this trap with my electricity bill.  Cooling a 2,500 square foot house in Texas can get expensive.  Let's talk about saving money on electricity.  [Buying, Picking, Maintaining a House Story]

In 2013, I switched to Reliant Energy and took an introductory offer than put a little cash bonus in my pocket.  That contract was a reasonable flat rate that was slightly above the average cost.  In 2014, a lot happened and we blindly signed up for a plan we never should have taken.  We were hit with bills 20% higher than the previous year.  At contract end, one plan seemed to fit our lifestyle.  I thought I could manipulate it to make it better than the other offers available.  The plan provided free electricity on nights and weekends.  Since my wife and I were working Monday through Friday, we were not home and the thermostat was set for infrequent use.  When we were home, I adjusted the upstairs temperature and air flow in an effort to reduce the load on my air conditioner.  On the weekends, we were mostly homebodies, watching TV and playing computer games.  We'd fire up the washer, dryer, and dish washer and complete a weeks worth of laundry with free electricity.  We thought we were winning.  We were most definitely losing money and we were oblivious.

I failed to calculate the cost of electricity delivery into the plan.  The the Reliant website neglects to make it obvious the added cost of delivery.  All the statistics and historical numbers ignore the cost of delivery.  Where I thought I was being charged around 9 cents per kilowatt hour, the real charge was 14 cents per kilowatt hour, 50% increase.  I never noticed because I was busy proposing, getting married, honeymooning, and having a child.  By the time I investigated our costs, a year had passed and we had already signed up for another year.   We spent $4,000 on electricity over those two years.

I decided that the best way to reduce costs would be to curtail our wastefulness.  The Kill-A-Watt electricity meter was extremely useful in tracking outlet power usage.  An idle TV or stereo can use a significant of wattage even when not in use.  I was able to pin point the most wasteful electronics and turn on power saving modes.  For my media server, the sleep setting was used and a setting called "wake on LAN" allowed it to be woken up from its slumber as needed.  In the rooms we rarely used, I added power strips to turn off on the way out.  The house was a tad drafty in spots, so weather stripping was added to the windows and doors.  Insulation was added on and around electrical outlets and to the garage door.  I did my best to minimize the loss of power and conditioned air.

Figure 1 - Energy Usage being energy efficient with an extra person in the household in 2017.

For all my efforts, lifestyle creep decimated the gains I would've seen.  My newborn used the dishwasher and laundry as much as my wife and I combined.  Electricity usage remained the same for that time period.  With no net gains, I sought to figure out what else I could do to tweak the equation.  Looking at Reliant's website, there were deals better than mine available.  I called and asked for a change.  They denied my request and noted that, since I was already a customer, I needed to look at the prices for existing customers.  They actually present different prices based on whether you are a current customer.  Those prices were terrible and I wanted out.  I was a bit enraged and kept contacting them.  Eventually, a customer service representative called me and admitted guilt.  They were supposed to switch me to the better plan upon my request.  Since I disdain this method of customer loyalty and wasted energy, I asked and was given a contract cancellation and refund.

My friends pointed me to www.powertochoose.org.  This website is Texas specific, but similar websites may be available for other states.  It saved me a ton of money by showing a no-nonsense, all inclusive cost for almost all the electricity providers in my area.  There were plans available that were lower than 8 cents per kWh, including delivery costs.  If I had known sooner, I could have saved roughly $660 a year, 33% of my bill.  Here's my before and after comparison in nice and simple graph.

Figure 2 - Money saved by switching electric providers in May 2017.

The focus on energy usage also made me keenly aware of elements in my house such as the air conditioner.  Around the same time I switched providers, the air conditioner started losing force and throughput.  Running longer, more inefficiently, and more expensively, a problem became apparent.  Earlier in the article, I mentioned closing vents to reduce the circulation of air.  In retrospect, that is a terrible idea.  An air conditioner pushes a predetermined volume of air for maximum efficiency.  I was mistakenly decreasing the efficiency and causing potential damage to the air conditioner's evaporator coil by restricting air flow.  The intent was good, but the execution was flawed.  The eventual,costly replacement left a sting of regret on that decision.  This year's savings will go directly that bill.

So, do you want an extra $660 a year?  Check your electricity bill and compare rates.  I unknowingly had been duped into paying much more than needed.  Find out what's wasteful.  Constantly improve and correct the mistakes of the past.  Learning can be a painful.  Gathering knowledge and awareness is the key.  Without stressful and costly energy bills, I may never have been motivated to take action, research options, and execute the best one.

Good Luck,
Dan

Loan Amortization

Amortization is the process of paying off a loan over a period of time.  When taking out a mortgage, an amortization table outlines the principal and interest amount paid each month.  Typically, a mortgage payment is the same each month, with an increasing amount being paid towards the principal of the loan.  Once the principal is paid, the loan is finished.  If the home or car is sold prior to completion of the loan, the amortization table is used to determine remaining debt.

For example, a person buys a house with no money down and sells the house 10 years later.  This person would have paid 20% towards the principal and would come away from the sale with 20% of the value of the loan plus the difference of the value of the asset.  Even though the person has been paying for 10 years or 33% of the loan's duration, their ownership is reducing due to upfront interest payment detracting from the principal.

Here's a second example.  A person buys a house with no money down and sells the house 20 years later.  This person would have paid 20% towards the principal and would come away from the sale with 51% of the value of the loan plus the difference of the value of the asset.  As more time elapses, the principal payment increases while the interest payment increases.  The additional ten years of payments increases this persons ownership by 31% versus 20% over the duration in the previous example.  The last ten years of the loan will completely payoff the loan and the person will gain the remaining 49% for a total of 100% ownership at loan's end.

The amount of interest being paid on a loan can be a large factor in federal taxes as a portion of interest paid is tax deductible.  For the first several years of owning my own home, I was able to use mortgage interest to surpass the standard deduction and reap extra gains on my tax return.  This will not always be the case as the mortgage interest payment drops rapidly towards the end of the loan.  As a side note, the Trump tax plan is set to change thresholds for the standard deduction, which will decrease the number of people able to itemize and use this method for additional savings.

I've included a sample Amortization spreadsheet you can download and use.

Amortization Table

Thanks,
Dan

Housing - Rent vs Own - A Customized Spreadsheet

In a previous post [Housing - Renting vs Owning], I took a generalized look at housing scenarios and potential outcomes.  Naturally, every one has varied input and the generalized scenario may not fit your specific scenario.  So, I made a spreadsheet to capture the detail of owning vs renting.  Here's the Link to the Detailed Rent vs Own Spreadsheet.

The spreadsheet details the following variables:

Shared Variables

Projected Yearly Inflation

Rent Variables

Current Rent per Month

Security Deposit

Home Ownership Variables

Cost of Home

Down Payment As Percent

Down Payment In Dollars

Closing Costs As Percent

Closing Costs In Dollars

Mortgage Loan In Dollars

Yearly Mortgage Interest Rate

Yearly Mortgage Annual Percentage Yield

Monthly Mortgage Payment

Yearly Mortgage Payment

Yearly Private Mortgage Insurance Rate

Yearly PMI, if under 20% down

Yearly Taxes as Percentage

Yearly Maintenace As Percentage

Planning to Move in X Years

The intent is to capture the upfront, monthly, yearly, and opportunity costs associated with both scenarios.  The spreadsheet is pre-filled with the scenario I faced several years ago when I had the choice of renting a two bedroom apartment for about $1,200 or purchasing a house for about $200,000.  Your situation will vary, so feel free to download and play with the spreadsheet as needed.

Link to the Detailed Rent vs Own Spreadsheet

Thanks,
Dan

Housing - Owning Vs Renting

The following article examines the price of owning vs renting.  I read an article that conflated the two and obfuscated the results, so I decided to simplify it as much as possible.

The ownership scenario gives a range of house prices with a monthly mortgage of 4.375% with no down payment, ignores private mortgage insurance and closing costs, adds $3,296 in taxes (average in US), and adds 1% in maintenance per year.  

The rent scenario gives a range of rent prices based on Houston, TX prices.  The average rent is taken over a 30 year term and given as a total cost at the end of 30 years.  I've also included investment returns based on each rent option compared to the $500,000 house option using a historical stock market return of 7%.  This method gives that most dramatic cost efficiency in favor of renting an apartment.  Note: A $500,000 house will never compare to any apartment in the Houston market, but may compare in other, more expensive markets.

At the end of a 30 year term, the average inflation applied is 2.10% for both scenarios.  The value of the house is inflated along with the rent payment.

Select the Home and Rent Prices for your own comparison.

Owner Cost over 30 Years - Part A

Owner Cost over 30 Years - Part B

Renter Cost over 30 Years including Investment Potential

These tables vary depending on your city and should generally apply to a starter home.  The general insight is that rent costs a whole lot more if you do make it to 30 years in the same house.  Another positive, houses will typically provide a lawn, more space, and will likely gain value during ownership.  Most people reside in the same home for approximately seven years, which would increase the cost of home ownership due to the amortization structure of mortgages.  The downside of home ownership is immovability and locale.  I've also ignored private mortgage insurance, a down payment, and closing costs in this scenario, which skews the results towards home ownership.  While renting, one can choose to live elsewhere and closer to city centers, which is a huge factor for younger individuals.  

This article is short and simple to get back into the rhythm.  More articles are forthcoming.  I plan to cover this same scenario with a down payment, closing costs, and the seven year turn around.

Thanks,

Dan