Cutting the Internet Cord

You might say that I’m the closest thing to a Luddite in Boston. I don’t own a car. I don’t subscribe to cable TV. (I don’t even have a TV.) I don’t own a landline phone. Shortly, I will add one more item to my tech hit list. On May 25th, I will eliminate cable Internet from my material existence, along with the $66.95 monthly bill that comes with it. 

The decision was initially a matter of money– “my” money. Over the last several years, my cable bill has been gradually creeping up from its 1-year deal rate of $19.95. When I finally learned a month ago that my smartphone can act as my laptop’s wireless router (dubbed “Mobile Hotspot” — can you tell how behind I am in the tech world?), I began to question the need for high-speed cable Internet. In addition, I learned earlier this year that both my condo fee and subway pass fare will increase sometime this summer. So, I needed to triage. The ultimate question was: Can I divorce myself from the Internet provider after having been married to it for the last 16 years? 

I contemplated long and hard about the issue. I read multiple Web articles on the relative advantages and disadvantages of relying solely on my phone data plan. Clearly, if I were a Netflix or YouTube hog or a serious gamer or music downloader, then cutting the Internet cord would not be feasible. My phone plan grants me only 3GB of Mobile Hotspot, which is insufficient for even one high-def movie. Fortunately, I do not belong in that camp of techno gluttons, and I convinced myself that I can ration my data in much the same way that I ration my monthly grocery allowance. I could use the Hotspot for simple tasks, like creating documents on Google Docs or checking my work emails from home. Because I have unlimited 4G data on my phone plan, I can conduct on my multi-purpose phone the vast majority of social media, personal email, web surfing, and video streaming. (I’ve used the Netflix app several times on the phone, and the movies look just fine on the ultra-small screen). If I were desperate, my local coffee shop with free Wi-Fi is right around the corner.  

While money may have been the catalyst for this cord-cutting experiment, I was forced again to ask myself “Do I need this?” “Will my life be made simpler without it?” The answers to those questions are, respectively, no and yes. I love the idea, and the challenge, of pursuing a life without fewer material possessions. I’ll learn to be creative with my limited resources, to focus more on my hobbies and friendships, and to use technology with more intention. (No more hours of mindless web surfing!) I’m not quite at the level of a techno-minimalist (and owning both a smartphone and laptop will definitely prevent my ascension to that revered level), but it’s a step in the right direction. And my checkbook will thank me for it.     

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What Could Have Been

When financial planners discuss death with their clients, the conversation usually revolves around these elements: Get your beneficiaries and contingent beneficiaries listed in your retirement plans. Buy life insurance to ensure your family’s continued lifestyle. Set up trusts to avoid estate taxation or probate and dictate the conditions of an inheritance. Designate financial and health care powers of attorney. Write a will. It’s easy to plan for the financial ramifications of death due to its checklist objectivity. It’s far more difficult to address the emotional hurricane that accompanies the death of a loved one.

On Veteran’s Day last year, my 31-year-old niece suddenly died at the onset of giving birth. Her daughter, born with brain damage and organ failure, was taken off of life support. I received the grave news in a phone call from Emily, her aunt and my sister, when I was just about to leave my office at 5PM that day. The train ride home was a nebulous mixture of muddled sounds: passengers chatting and laughing, doors sliding open and closed, train conductors announcing the next stops. When I arrived home, I quietly prepared dinner, drank plenty of water (as instructed by Emily), resigned myself to tears, and then finally called my mother. Her somber tone was a stark contrast to the cheerfulness I heard from her voice just ten hours earlier, when neither of us knew what had happened.

Over the next two weeks leading up to the wake and funeral, I went online to try to cobble together a semblance of my niece’s life history- her likes and dislikes, her trips, her changing hairstyle. My eyes wandered from her Facebook photos to her professional website. I read through old emails that she sent me, including one email from 2009 that expressed her desire to learn about IRAs. I became obsessed with this travel back in time, as if overloading my senses with images of her would somehow resurrect her.

Death at any age is a tragedy. But death at a young age is tragic because it forces the question, “What could have been?” I learned that she and her husband were going to buy a house. I learned that she made it to the second round of an interview for a landscape architect position for the City of Los Angeles. Her untimely death put to rest the promise of a prosperous future, the opportunities that were supposed to have been hers.

The financial planner in me wondered: Did she have life insurance so that her husband could pay for the funeral expenses? Did she have outstanding debts? Did she have a retirement plan or a will? I dared not ask anyone these questions, however, for fear of sounding too callous. So I set aside my financial planner hat. Instead, I kept quiet, except to console and to be consoled, to reminisce with family, relatives, and friends about the joyous moments, to be grateful to have experienced her love for 31 years. For sure, I thought about what could have been, what she could have accomplished. More often, I thought about what she had accomplished, and that has helped me heal a little.

Isaias Sarmiento
© 2014

The Power of Art

I am no artist; in fact, my sister Elma once remarked that I couldn’t even draw decent stick figures. But I always had an interest in the role of art in world history, and this interest solidified during my junior year in college when I took two Western art history courses covering Medieval, Renaissance, Baroque and Modern art. In 2004, I purchased a small spray painting in Fort Worth, Texas for $10 by a street artist named Baltimore. I still have it. Sadly, that was the extent of my devotion to the visual arts… until the Fall of 2012.

I had finally decided to decorate the walls of my home, but I was loath to make decisions about what shades of gray to paint over the white walls. (That, and the fact that painting a wall isn’t my forte.) Coincidentally, my neighborhood in Boston was planning to hold an Open Studios weekend event, in which various local artists would display their artwork for the public to view and purchase. The answer to my decorating dilemma finally surfaced- I would buy art. I would be an art collector. My walls would resemble a modest version of the Italian Room at the Boston Museum of Fine Arts.

After Open Studios concluded, I painstakingly researched the artists whose work interested me. Using the Internet, I combed through their websites, looked at other works they had done, learned if they had won any awards, and in some cases, found out where they lived. I settled on a painter named David Sturtevant. After several email exchanges, I made the trek to his home studio. I spoke with him for a good hour about his technique, style, and subject matter, and about my beginning collector’s thoughts on art buying. At the end of my visit, I purchased a small oil painting of a scene at dusk called “Urban Sunset”. The piece set my finances back by $350, but I fell in love with it. This purchase served as the catalyst for my new hobby in art collecting.

To date, I own over 80 pieces, acquired at galleries, artist studios, the Internet, my neighborhood thrift shop, and even from friends and family as gifts. I estimate that I have spent about $6000 on artwork, shipping, frames, mattes, hooks and wires. To the well-heeled art collector, $6000 barely buys a Warhol print. To me, art collecting has proven to be an expensive new hobby. The financially prudent, rational side of me sometimes wondered whether I misplaced my sanity. Art doesn’t provide quarterly dividends like stocks, or semiannual interest like bonds, or monthly rent like real estate. Art is an illiquid asset, relative to stocks and bonds; you just can’t sell your lily pad watercolors tomorrow. An art piece may not even rise in value; if it does, it could take decades before you could reap the investment rewards. Art doesn’t improve my physical health, the way yoga and exercising do. Simply put, I love looking at art.

That last statement is the point. It dawned on me that my love of art (and the amount of money that I was willing to spend to have some of it) was akin to my mother’s love of plants, or my friends’ love for their pets. Art provides me with beautiful visual stimulation. Art helps me to pause my Type A tendencies and smell (or rather, see) the roses. Every art purchase has a story that I can share with anyone who visits my home. More recently, art has helped me cope with some family-related stress. In some ways, art is like yoga. It stills my mind and makes me focus on the present. My art collection may not yield any money today, but the personal dividends it immediately provides has a value that cannot be measured in dollar signs.

Isaias Sarmiento
© 2014

The Sad Stories of Tax Season

Arguably my favorite part about doing taxes is simply the relationship developed between my clients and me. Although I’m not the biggest fan of big refunds, I readily admit that a smile beams across my face when a client finds out that he is due a refund and exclaims that he can now pay his credit card bills, keep his landlord from evicting him, or maintain heat in his home. Then there are the sad stories.

One year, I worked with a woman whose husband left her and their two sons in the middle of the year. Her sole source of income was unemployment benefits, which disqualified her from the Earned Income Credit. While she had no IRS tax liability (or a refund, for that matter), she owed almost $400 to the state. Another client was a self-employed hairdresser who failed to make estimated tax payments throughout the year. She was so flustered by the whole ordeal that she decided not to have her return prepared at the time. One of the saddest situations I have encountered is a nurse who lost her job early in the year, received unemployment benefits but didn’t withhold any taxes, and took out a premature distribution from her former employer’s 403b plan so she could pay the rent. Her nearly $5000 federal tax bill included the 10% penalty for her early retirement withdrawal. I don’t even remember the extent of her state tax bill.

I run across these stories all the time every tax season. It’s too easy for me to advise people to withhold taxes when they’re receiving unemployment, to make estimated payments every quarter if they’re self-employed or retired, or to save vigorously for an emergency fund so that they can avoid raiding their retirement plans. When you’re one of the working poor and just barely making ends meet every month, it’s difficult to heed these kinds of suggestions. To add insult to injury, the IRS will ultimately want its share of the pie. The problem for many of these people is that the pie simply doesn’t exist.

Isaias Sarmiento
© 2012

Making Time

I will have written 32 posts on this blog after I complete this one, 8 of which for this month alone. I could dismissively chalk up the uptick in blogging to the end of both tax season and the spring semester. I simply have more time, I’d casually assert. But when I look back at the number of posts I had written over time, I realize that having more time isn’t the reason for the surge in creativity. Rather, I ‘made time’ for writing, just as I make time for yoga classes in spite of my often-hectic work schedule. It didn’t matter whether the topic was banal or profound, simple or complex, technical or emotional. I decided to devote some evening or weekend hours to the keyboard, brainstorming ideas on the fly with my fingertips, then later polishing (or not) the content in more cohesive paragraphs.

Managing one’s finances ought to employ a similar approach. Take 15 minutes out of your day- during lunch breaks or while sitting in the train- and learn something about money. Read about the difference between a Traditional IRA and a Roth IRA. Brush up on the benefits and limitations of your health insurance plan. Compare mutual funds to see which might be less expensive or provide you with better portfolio diversification. Perhaps dedicate one hour of your weekend rereading (or writing) your will, checking the accuracy of your bank statements, or reviewing your investment portfolio. Soon enough, the bits of learning will weave themselves into the fabric of your normal routine. You don’t have to understand everything you read. As you continue to read, eventually the esoteric financial topics will begin to make sense. It’s your money after all, and nobody, not even a financial planner, should care about your finances more than you.

Isaias Sarmiento
© 2012

Investor Reflection

I wrote this post in an old blog back in March 10, 2009, which was merely one day after the end of the vicious bear market that began in October 2007 and included the awe-inspiring 777-point drop in the Dow Jones Industrial Average (aka Dow 30) on September 29, 2008.
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With the Dow 30 sitting at 6547 (as of Monday), I resolved once and for all to confront my investment demons, which lurked within my portfolio balance. I prepared myself for an earth shattering malaise. What I learned, however, was a surprising result that was both sobering and hopeful. Using my Morningstar X-Ray portal, I calculated the total amount I had in various retirement and savings accounts. Then I proceeded to add up all of my retirement contributions over the last 10 years, starting with 1998, the year I landed my first job as a math teacher in Southern California. The result? An annual return of 0.11%.

Not exactly the 8-10% stock market average that had been force fed to me by personal finance magazines. But I wasn’t in negative territory either. What I experienced firsthand was the cushioning effect of the 401k matches. I had deliberately excluded employer 401k matches from my total retirement contributions because it wasn’t money that I surrendered out of my own paycheck. We always hear about the importance of contributing at least enough to get the company match because it represents free money from our employer. What we don’t realize is that a match can keep our portfolios afloat if the markets hit a bump (or a crash).

Another important factor that individual investors overlook is the reduction in federal and state taxes for pre-tax contributions. I calculated that over the same 10-year period, I saved $14,545 in federal income taxes by virtue of contributing pre-tax money to various traditional IRAs and qualified plans. That number doesn’t even factor in the income taxes that I didn’t have to fork over to the state, first California, then Massachusetts. So my tax savings were certainly much greater.

Am I simply looking for a superficial silver lining in this market meltdown? Am I just trying to make myself feel better? The cynic would say ‘yes’ to both questions. But there is one conclusion I can confidently make: This financial reflection has prevented me from divorcing the market at a time when I need to remain faithful to it.
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When I reflect on this blog post, I am amazed at my resiliency against the seemingly bipolar nature of the current stock markets. To be sure, I felt an immense amount of fear, anger, and subsequent resignation toward the financial markets of that difficult period. But I also reminded myself that I was only in my mid-30s, that I had been through this before during the Tech crash of 2000-2002, that I had U.S. bond funds to cushion the heavy blows, that I didn’t lose everything. I continued regular contributions into my company 403b, started a solo 401k, maxed out my IRAs every year, and even started a taxable account. In the three years since that market bottom in March, I was rewarded for having stayed the course.

It is now May 2012. I am being tested again by the turbulent markets, and those same reminders are resurfacing like a yogic mantra. How would I react if I read this blog post three years from now? I could feel elated or dejected, depending on the results. But ‘humbled’ is probably what I’ll feel the most.

Isaias Sarmiento
© 2012

Independence

A few weeks ago in yoga class, my teacher Ame mentioned that one of the objectives of yoga teachers is to teach us to not need them anymore. We would be able to do yoga without the need for teachers, classes, or studios. A wave of emotional pain circuited through my body upon hearing this declaration. No more yoga classes? The studio is where I go when I need to de-stress from work! How will I improve my yoga asana practice without teachers? What about the new friends I made?

With a little more reflection (and some serious deep breathing!), I came to interpret her comment to mean that there comes a time when we need to incorporate yoga- the asanas, the meditation, the basic philosophies- beyond the four corners of the yoga mat, beyond the four walls of the studio. In other words, we need to learn that it is entirely possible to practice without always having someone tell us what the sequence of postures should be. That is true growth, and financial counselors like myself understand this concept. When clients come to our offices in financial disarray, we provide them with the tools they need to accomplish tasks like managing a spending plan, fixing credit problems, saving for the future, and protecting their loved ones. We may even help our clients fill out necessary forms or make phone calls to other professionals on their behalf. We take on these tasks because we want to protect our clients from potential financial catastrophes to the extent that we can.

At some point, though, our clients must learn how to tackle financial tasks and how to access resources without using us as a perpetual crutch. They might make mistakes, not unlike like a child learning to ride a bicycle or an 18-year-old college student living outside the home for the first time, but that is simply integrated into the learning process of becoming fully independent. To be sure, we should be available for our clients when they have pressing financial planning questions. But the best education we can provide for them is the ability to become confident owners of their financial domains.

As my mother used to say to me many times, “One day you will spread your wings, and you will fly on your own.”

Isaias Sarmiento
© 2012