Does pursuing FI mean a life of deprivation and extreme frugality?

One of the questions you often see from folks who just start is how far they should take their journey to financial independence. Most folks end up very quickly on Mr. Money Mustache or Early Retirement Extreme, and see a type of frugality that can be almost frightening. Getting by on $25,000/year (MMM) or $10,000/year (ERE) seems to be almost impossible for some folks, especially folks who come to us with a lot of debt (student loan, credit card, etc.).

In addition, many folks don’t get as energized by the idea of extreme frugality that some FIRE folks really enjoy. Let’s face it, some of the people in our community definitely take a “more frugal than thou” attitude, and compete for ways to show how frugal they are being.

Still, what I like about our community is the wide variety of options, of people, of circumstances, and of goals that are demonstrated by the various blogs. You can find single people, married people, young & old, folks with kids & with just pets, extreme frugality and “fat FI” people who like to spend. It won’t take you long searching on Rockstar Finance to find someone (or many someone’s) whose circumstances come close to your own. You can then settle in for some good reading, good ideas, and excellent motivation.

For Mrs. 39 Months and myself, we’ve been long on this journey, and only really got a push once we paid off our home mortgage and became debt free. That was when the numbers all suddenly came together, and we could take a good look at how long it would be to obtain FI.

What caused me to write about this topic today? Well, it’s a little cold & rainy here in Southern NJ today (Feb 24) – like it is in a lot of the country. Mrs. 39 Months decided we should go out and have a traditional English Tea (scones & the works) at a local restaurant that caters to British food. While Mr. Money Mustache might laugh at us for this (“make the scones & tea yourself at home – and here is a great recipe”) we are making the decision to go out and patronize a local establishment.

Many folks in the FIRE community talk about intentional living, making decisions based on your wants and needs. If you feel the money spent provides you value, then go and spend it. I happen to agree with this, and going for scones and tea looks like it will provide value today.

 

What is worth spending funds on for you?

 

Mr. 39 Months

Are FI people just parasites?

I have been “binge listening” to Choose FI podcasts, trying to get caught up (currently on episode 50 out of 62). I highly recommend them.

Recently finished what turned out to be one of their most controversial, episode 47 with Millennial Revolution, a young couple from Canada who achieved FI in their 20s. They lived in Toronto, and were seeking to purchase a home there. After saving up $500K Canadian to purchase, they realized the home prices were insane, and chose to hold off and rent.  They never purchased a home.

Once they achieved FI, they realized they could travel the world and spend $40K a year (or less) which they had the funds to support. For the last 2+ years, they have been traveling the world, visiting sites, and having a great time – certainly a goal of many FIRE folks.

One of the things they really push is that buying a home is a stupid/foolish move, the numbers just don’t add up. As I listened, I had numerous questions on things they didn’t seem to be taking into account. While I can agree that your own home should never be purchased for an “investment,” I still believe they didn’t account for a lot of rental costs, and didn’t give sufficient credit for a fully paid off home. Apparently I wasn’t the only one, because the episode ended up being one of the most commented on for the show, and the two hosts of Choose FI, in episode 50, apologized to the audience that they hadn’t asked the Millennial Revolution couple the hard questions on their math.

What struck me, during the discussion (and on many conversations about travel and other FIRE folks before and after) is how much FI folks depend on non-FI folks in order to live and enjoy their lives. For those traveling and enjoying low-cost living, they all depend on pilots, service personnel, restaurant owners, etc. to get homes, live in place, and do the 9-5 for most of their lives. Without a large percentage of the population dedicated to regular lives (home, kids, work, etc.)  the FI folks wouldn’t be able to do half the stuff we do, once we achieve FI.

Don’t get me wrong – the tenets of financial independence (frugality, intentional living, etc.) can easily be adopted by most folks and can lead to a more enjoyable, less stressful life. Just don’t get on your “high horse” about how much more superior you are to other folks. If we all really believe in intentional living, these folks have made their choice, and many times, we benefit off that.

I don’t think FI folks are “parasites” – we have just chosen to prioritize other things. We can happily co-exist with folks who have made different choices.

 

Mr. 39 Months

Two steps on travel rewards, completed, working on 3rd!

OK, if you remember back in December I did my first semi-official travel hack (kinda).

Well, following the guys on ChooseFI and other folks in the community, I’ve been furiously working on additional travel hacks. I’ve applied for and received two of the Chase Credit cards,  the Southwest Rapid Rewards Premier card (40K miles when you charge $1,000 dollars in the first 3 months) and the Southwest Rapid Rewards Premier Business card (60K miles when you charge $3,000 dollars in first 3 months).

Well, got the cards in early and mid-December 2017, and I’ve managed to put on over $6,000 in 2 months, just paying regular bills and taking one business trip. So as of today, I hit my goal for the 2nd card and got credit. I now have 106,360 miles in my Southwest account for miles (good for around 3-4 cross-country trips), without doing more than just regular spending (and paying off the credit cards) plus the $198 (2 x $99) for the credit cards. $198 for 4 round-trip coast –to-coast ticket. Two major hacks done!

Now on to the next “hack” – when you reach 110,000 miles/points in a calendar year, you get the infamous Southwest Airlines Companion Pass (someone can travel with you for free). I have a business trip next week and a personal vacation week in March, so I should be able to hop those pretty quick. I’ve already told Mrs. 39 Months that we need to plan on travel sometime in 2018 and use this option.

After that, its time to get the Chase Sapphire rewards card (50,000 points if you spend $4K in 3 months) and I’ll really be up there! I already have a bunch of American Airlines and hotel points due to business travel. I actually am enjoying this a bit. I’ll let you know how I’m doing as we go forward.

 

Mr. 39 Months

Healthcare IV

Well, as you remember from my last healthcare post, I checked out potential healthcare costs at the places we were thinking of moving to, once we hit our FIRE goal. We were lucky in that the healthcare was available, at roughly the same price we would pay if we stayed where we were. So much for Geoarbitrage in terms of healthcare!

I wanted to start exploring some other options for folks beyond the standard healthcare options.  As some of you may know, in the US there is an exemption to some of the requirements of the ACA medical act (Obamacare) due to religious exemption. “Members of recognized health care sharing ministries are exempt from the mandate to purchase health insurance by 2014 or face financial penalties. Enrollment with a recognized health care sharing ministry REMOVES your requirement under the healthcare mandate to purchase health insurance.” This enables the Health share organizations to provide an alternative to traditional medical insurance.

The general concept is that the individuals signing up form a “pool of funds” with their contributions, and share them with each other to cover medical expenses. You pay in money up front and monthly, and then the program compensates your doctor, pharmacy, etc. When asked by the doctor, you explain that you will “self-pay” but that you belong to a group that will compensate them with directly. You even get a medical card, etc. For existing conditions, they typically are not covered the first year, are partially covered in year 2, and fully covered in year 3+. When I checked for the two of us, our costs were coming in between $350 – $500/month.

 Part of the issue you may have with this form of health sharing system is the ethics that you are expected to adhere to in order to stay in the system. Some of the strictures could include:

  • Abstain from tobacco use in any form.
  • Follow biblical teachings on the use or abuse of alcohol.
  • Avoid abuse of prescription drugs, which means consuming prescription medications in a manner not intended by the prescriber that would likely result in bodily harm or dependency.
  • Abstain from the use of illegal drugs. Illegal drugs include, but are not limited to, any hallucinogenic substance, barbiturates, amphetamines, cocaine, heroin, marijuana, illegal intravenous drugs, or narcotics.
  • Exercise regularly and eat healthy foods that do not harm the body.
  • Some individuals who qualify for our medical cost sharing program but have certain pre-existing health conditions that can be improved through lifestyle changes will be enrolled in HealthTrac℠. This required program is in place for Sharing Members to improve their health while reducing the risk of developing or exacerbating serious diseases.
  • If a condition is accepted as pre-existing, that member will be accepted with that limitation (see question about Pre-Existing Conditions).
  • All decisions for membership approval are made in consultation with the prospective member and with the most complete information available.

A key point is the one below – membership must be approved by the program administrators – you don’t just get to enroll automatically.  In order to qualify for the exemption from ACA, the programs have to have ‘(II) members of which share a common set of ethical or religious beliefs and share medical expenses among members in accordance with those beliefs and without regard to the State in which a member resides or is employed. Thus, it is similar to belonging to a specific sect of a church in order to qualify. If you do not meet up with that program’s guidelines, they will not cover you – because to do so will put their program in jeopardy. Denial of pre-existing conditions seems to be another issue with this format. This may rub you the wrong way if you don’t follow that particular denomination, but you may be able to seek out one for your personally religious calling.  

These healthcare ministries are still very new, and the legal ramifications are still being worked out on them. They may be a compelling option in the future, but make sure you go in with your eyes wide open. I intend to keep this as one of my options as we get closer to FIRE.

Additional articles on the subject:

If this interests you, here are some Specific programs to investigate:

Anyone have further information, or things you want me to look into for Healthcare?

 

Mr. 39 Months

 

Exploding your savings rate!

While a major part of the FIRE philosophy is enhancing your income via excelling at work and doing side hustles, another key part is frugality and minimizing your expenditures, so you can maximize your savings rate. In my opinion, the frugality/minimize path is the more effective, because most increases in your income will see a portion taken out for taxes. Any money saved via frugality is post-tax, and therefore goes straight to the bottom line.

One thing you can do is to tray and maximize whatever company benefits you may have, so that you don’t have to spend the money (and be taxed) yourself. Whenever your company benefits package comes out, get a copy and look through them for what discounts or free-stuff is available that you might want to use. Some examples include:

  • Learning Opportunities/Training
  • Discounts on products & services (movie tickets, computers, entertainment, etc.)
  • Insurance (low-cost Life, Disability, etc.)
  • Reduced cost legal services

Use these benefits to try to further cut your expenses, and then bump that money into your savings and investments.

One of the things my company has is a Deferred account – the equivalent of a 401k (paid with pre-tax dollars). You basically don’t get paid this money, you “defer” it to a later date. You can start withdrawing it after you’ve been with the company for 5 years. If you leave the company, you have to take the money out – and pay taxes on it. You can take it out as a lump sum (dumb) or break it out to receive a monthly amount for a period up to 5 years. It’s like a 401K that you could access at age 35!

Previously, I was putting in 6% of my paycheck (the max was 25%) and 25% of my annual bonus (I could put in 100% of bonus). You have to make the decision in December for the following year, and then its locked in. In 2017, I was also putting away $1,376 a month into regular investments, so I’d have something to help “tide me over” from early retirement to age 59 (when I could access my IRAs).

I dawned on me that I could put away 25% of my take home, and that would be around $1,300 per paycheck, or a little more than twice was I was putting away to that investment account. In addition, my cash flow still let me put $300 into that investment account each month. Let’s see, save $1,376/month or $2,900/month? Tough choice. I also realized that, based on my spending, I didn’t really need to get my bonus in 2018. Switch that to 100% to deferred. The result?

 

Bam! Savings rate went from 30.1% of gross pay to 55.9% of gross pay. In addition, I am building up a sizable chunk of money that, when I chose to retire, I can take it out and use for living arrangements with no penalty. While its taxed, I plan to be in a much lower tax bracket by then. Based on this, I won’t have to dip into my 401K/IRA money till well past 59-1/2. Maybe use this to help do some Roth IRA conversions?

After calculating this in early 2017, I felt like quite the idiot for not doing it in 2017. I also realized that I could use this to retire a full year earlier. Shortly after that, I started the 39 Months blog.

So check out your company benefits and other ways to cut your expenses – and then put those funds into investments!

 

Mr. 39 Months

Well that was unexpected – Not!

All you heard on the news last night and this morning was the “gigantic” drop in the investment market yesterday. Some are already calling it “Black Monday.” I personally had about $20,000 erased in one day. Ouch!

From Marketwatch

 How did the main benchmarks perform?

 The S&P 500 SPX, -4.10% dropped 113.19 points, or 4.1%, to 2,648.94. The large-cap index is now off more than 5% from its all-time intraday high of 2,872.87 on Jan. 26. The S&P 500 had gone 406 sessions without such a decline, marking the longest period without a 5% pullback in 20 years.

 The Dow Jones Industrial Average DJIA, -4.60% slumped 1,175.21 points, or 4.6%, to 24,345.75, not up all its 2018 gains. The S&P 500’s percentage drop was the largest since Aug. 18, 2011, while the Dow’s drop was the biggest since Aug. 10, 2011. The S&P 500 and Dow both turned negative for the year.

So what is the FIRE community doing this morning? My bet is that, like me, they are going about their business and not sweating it. Folks in our community invest for the long haul, have a long-term outlook on investments, and understand that the market is going to jump at times. Heck, in January it was up almost 6%, so if anything, we are still up for the year. In 2017, it was up 19% (versus its long-term average of around 10%). So why “work ourselves up into a lather” about it.

Besides, I rebalanced at the beginning of the year, so I took some of those gains off the table (buying low cost “losers” and selling high cost “winners”). One of the reasons to do that.

My plan continues. I will contribute funds every paycheck on a regular basis, with the same allocation as before. I expect to hit my FI goal in 29 months, and nothing I see here makes me think any different.

Similar sentiments:

 

Mr. 39 Months

Financial Independence and Stoicism

Some things are in our control, while others are not. We control our opinion, choice, desire, aversion, and in a word, everything of our own doing. We don’t control our body, property, reputation, position, and, in a word, everything not of our own doing. Even more, the things in our control are by nature free, unhindered, and unobstructed, while those not in our control are weak, slavish, can be hindered, and are not our own.” Epictetus

Anyone who has read some of Tim Ferris’ work or listen to some of his podcasts know that he is a big fan of stoicism, and often goes over the benefits that can be gained by studying and following the tenets of the philosophy. I have been reading about stoicism for the last year and find that I greatly enjoy and benefit from the readings and practice of it. Contrary to many folks opinion, stoics don’t turn away from the world, the philosophy demands that they engage in it. However, it also asks them to realize how little control they have over events and other people, and to recognize that the only power they have is to control their own actions and emotions. It is here where people get their ideas about folks “behaving stoically.” Stoics can be sad, angry, etc. – but they are taught to recognize the emotions and not act on them without thinking.

I believe the stoic attitude definitely helps with frugality, because stoics are taught to recognize that all of these items are fleeting, and that they really don’t determine a person’s happiness. One of the key stoic exercises is to spend a period of time without something you believe necessary for your life (good food, a smart phone, nice home) so that you can see that, in the grand scheme of things, you can live without most of this stuff. It can make life easier, but it isn’t absolutely necessary.

This month, I chose to give up on sugar for the month (which is really hard, Mr. 39 Months has a definite sweet tooth). I’m on day 3 so far, and I am adapting. I have survived 72 hours without a sugary snack – and I’m not dead.

For those interested, I’d suggest a book titled “A guide to the good life” by William Irvine. It’s an excellent introduction to stoicism.

Mr. 39 Months