Book Review: Playing with Fire

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Yesterday, after walking to the library to pick up Playing with Fire, I stopped by an open house on my way back home. When I walked in, the real estate agent greeted me with, “Hey you’re too young to be here! You’re still borrowing books from the library! How old are you, seventeen?” I was surprised at the way she greeted me, but I smiled and explained that I liked reading, all the while thinking: 1. How is that any way to talk to a potential buyer? 2. Since when is there an age requirement to buy real estate (besides being of age)? 3. What’s wrong with the library? 4. How do you think I’m saving up, lady?

The whole exchange felt like yet another time I stuck out like a sore thumb on my path to FIRE. From this one I gathered that normal people don’t read books (or if they do they buy them) and they don’t buy homes until they look a certain age.

Once I got home and started reading Playing with Fire, however, I was reminded that this type of experience is not unique to me. In the book, Scott tells the unique story of his family, but somehow their journey feels just like mine. There are so many relatable experiences, feelings, and realizations for everyone in the FIRE community that make the pages fly by. That’s why I feel like this book is best for people who are in the slow accumulation phase of FIRE and need some emotional support or are just getting started.

Scott also introduces a lot of FIRE concepts with newbies in mind, but it’s been so long since I started that I can’t make a fair judgement on that content. I did like how Scott included some profiles of other people, which showed some of the diversity within the community, but I don’t know how someone completely new to the concept of FIRE would respond to this book.

I have a feeling that the documentary will be the same story told in the book, but I’m still looking forward to it. I think it will help spread and normalize the concept of FIRE like Marie Kondo’s Netflix series.

If you read Playing with Fire, what did you think of it? I’d love to know!

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Money Diaries

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I love money diaries.

For those of you that are unfamiliar, these are unfiltered accounts of how people earn and spend their money. I love how much they reveal about a person, their life, and their values, no matter how much hand waving or rationalizing they do to explain certain purchases.

It’s also clear that I’m not the only one. In the past few years, there has been a profusion of blogs, articles, and videos (of mostly millennials) laying their finances bare for the world to see, which I think speaks to the demand for this type of content.

I’ve always wondered though, if there’s anything else that can be gleaned when looking at everything in aggregate. One of the richest collections of diaries is Refinery29’s Money Diaries series, which started a little over three years ago. Fortunately for me, a large portion of these diaries are written by those that live and work in the New York City area.

So, like any rational person, I decided to compile all the data from the diaries and do some analysis. It wasn’t an exact science though. I excluded some outliers like full time students and a couple at the high end (I’m looking at you, hedge fund managing director and real estate mogul) and did my best to split up the finances from diaries where finances were mixed.

Given that, these are some of the things I found interesting:

  • Older doesn’t mean wiser financially speaking. While salary generally rises with age, there doesn’t seem to be any correlation between age and what percentage of take home pay is spent on fixed expenses such as housing, transportation, subscriptions, etc.
  • Lifestyle inflation is real, but fixed expenses don’t increase in proportion to salary. It doesn’t look like discretionary expenses do either, but that’s hard to confirm since almost all of the diaries are only a week long.
  • You’re more likely to blow your budget for the week when you make less money. Even though that seems kind of obvious, I was surprised at how seldom diaries at the higher income levels went above their weekly disposable income ((Take Home Pay – Fixed Expenses) / 52 weeks) given the distribution of utilization of disposable incomes.
  • It’s easier to save when you make more money. Again, kind of obvious, but I think the interesting thing is how slowly the savings needle moves.
  • There doesn’t seem to be a heavy editorial hand in the Money Diary series. There’s a heavy tail distribution in terms of salary and utilization of weekly disposable income (defined above), which fits the general population, so it doesn’t look like they’re trying to sensationalize the series or spotlight a certain type of spending profile for the most part.

In addition, some interesting medians from the data set are:

  • Age: 27
  • Salary: $70,000
  • Housing: $1,164
  • Housing as a Percentage of Take Home Pay: 29.8%* (Assuming single filer taking standard deduction and single exemption depending on tax year)
  • After-Tax Fixed Expenses (Including Housing): $20,117
  • After-Tax Fixed Expenses as a Percentage of Take Home Pay: 42.5%
  • Percentage of After-Tax Non-Fixed Income Spent: 94%
  • Projected Yearly Savings: $2,738* (Assuming that the one recorded week represents an average for the year)

If you made it this far, clearly you’re not bored by numbers and probably have a few questions about my methodology. That’s a good thing. I will be the first person to admit that this is not scientifically rigorous and should not be taken at face value and I’d love to hear your suggestions on how to improve this analysis. That said, I hope the following will explain the reasoning behind my decisions.

Who was excluded?

  • Anyone who was a full-time student because they represent a different kind of financial population in the series
  • The two diaries that were making over a million a year and both over the age of 35 because the sample sizes were so small at that end of the spectrum and not reflective of the general population. (Because I know that 100% of New Yorkers > 35 do not make at least a million dollars a year)
  • Anyone that didn’t work in New York City because even though Northern New Jersey and Long Island are close and also expensive, they’re still different enough from the rest of the sample group.

What about taxes?

For my own sanity, I applied the tax rates for the year in which the diary was published and assumed that everyone was filing single, taking the standard deduction, and one personal exemption if applicable in that year. I also assumed that diarists living outside the five boroughs did not have to pay any city income tax.

Why are you using take home pay?

Two reasons: because some millennials receive an allowance from family, although this was not as common as the media would like you to believe, and because of the different tax rates. The most common forms of familial support came in the form of no education debt, not contributing to a cell phone family plan, and not contributing to family entertainment subscriptions.

How is it fair to use one week of spending to extrapolate to an entire year?

It’s not, but given the fairly normal distribution, I felt that the median number would still provide some color. If you work at Mint or Personal Capital, I’d love to talk to you though.

What about purchases that are clearly once in a blue moon or later going to be reimbursed in some way?

Yes, I agree that those should be taken out and adjusted, but it seemed like very little additional clarity for a great amount of work. Volunteers welcome!

What about inflation?

Yes I thought about that too, but it’s three years of data. I didn’t adjust any of the calculations for inflation, but I’ll consider it for v2.

That’s it for now, but I’m planning on revising this data. If you have any suggestions, please leave a comment!

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