Our Next Life has a good post with a lot of data on how people are doing once they retire early. A good read
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
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
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!
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.
Mr. 39 Months
“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
I always appreciate his articles, especially when he gets into a deep topic. In this one, he discusses how not having intrinsic motivation for something else when you retire will cause you to fail (either returning to work, or worse). Good read.
He is being provided an opportunity to move up the corporate ladder, and he talks about how the pluses and minuses of moving up. He also discusses how, as they have sought out FI, it gives them more options and allows them to stress out less about this potential move.
“Yep, if this new assignment turns out to be horrid, I already have a parachute packed with my name on it and I can jump out of this plane at any time knowing that I will land safely on the ground below”
One of the other major benefits of pursuing the FI lifestyle!
Mr. 39 Months
Guest Post: Spending less doesn’t mean living less: How?
Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger whom has started her own blog and also works as a contributor for the Oak View Law Group. Please share your opinions by commenting below.
Spending less doesn’t mean living less: How?
If you are living beyond your means, then you should be wary about your poor financial future. Having a lot of financial obligations make you frustrated and restless.
Getting your finances in order is not easy, especially if you owe huge debts.
However, spending less money is one of the sure shot ways to make a positive impact on your finances. But, a lot of people often believe that spending less means depriving themselves. But it is not true. It is sad that people don’t know that living a fulfilling life while spending less is possible.
Living on less: What does it mean?
People often think that living on less means living in misery. They believe that once they adopt a frugal lifestyle, it will force them to live a poor life.
But in reality, living a frugal life means, you are able to distinguish between your wants and needs. Being a frugal person, you can live a more meaningful life. Of course, you can dream of a high-end watch, a car, and some latest gadgets, but all these come after paying the monthly bills on time, paying off debt, and deposit a definite amount into the savings account. Frugal persons are even able to make investments to grow their money over time. Frugal habits also make financial life peaceful and secured.
On the other hand, cheap skate persons deprive themselves or others just for the sake of saving some dollars here and there. They have only one goal in their life – saving money at any cost. They eat at a low-quality restaurant just because the price is low. They show their obsession over the price. They believe, the cheaper price, the greater benefit.
But being a frugal minded person, you are actually saving money by buying fewer but quality products.
Frugality helps you learn how to cut down expenses that are unnecessary. By doing so, you can save quite a significant amount that you can put into a savings account or can use purposefully.
Here are some ways you can start living a frugal lifestyle.
1. Avoid frequent restaurant visits
One of the best ways to save money is to avoid eating out every day. It is true that eating out can be a lot of fun and sometimes it’s difficult to carry home cooked food to work every day. But, eating at a restaurant every time you feel hungry can cause a huge hole in your pocket. These expenses may not appear too big individually, but can be huge if taken altogether. You should try to eat at home and pack your lunch when going out to work. This will help you save a lot of money that you can put towards other expenses.
- Consider thrift stores
You must consider a thrift store for purchasing your necessities without spending a lot. By doing so, you don’t have to compromise on the quality of the products. The added benefit is, you are saving some bucks. Also, consider shopping in bulk for grocery and vegetables. You can easily store perishable items that you won’t use right away in the refrigerator and stock up the non-perishable items when they’re on sale.
- Keep one car in good state instead of keeping multiple bad quality cars
Keeping multiple cars that are in a bad state can cost you dearly. You will need to pay thousands of bucks to repair the cars, if required. On the other hand, if you claim insurance for repairing the damaged car, the cost of insurance coverage can increase on policy renewal.
Therefore, it is wise to keep one car in good state, which can serve you better, and for which you don’t have to spend much.
- Make spending changes wisely
You may get tempted to purchase goods from the best manufacturers or goods that have a high brand value. By doing so, you are wasting money on something that you could have purchased for a much lower price. Thus, it is recommended to compare price before purchasing an item. You can also wait for a sale to buy the item on discount.
- Keep a piggy bank
Create a coin bank to dump the changes collected from the gas station or a grocery store. See how much you have collected over the course of a year. You can also save the money you received as gifts on birthdays, holidays and sometimes unexpected gains like the tax refund (you haven’t calculated), lottery, etc.
- Contribute money into a retirement account
You should set aside a certain amount (at least 20% of your monthly income) every month into a retirement fund. Try not to spend your hard-earned money in impulse buying. It’s possible for you to secure your retirement, but it takes some serious commitment and time.
- Consider free entertainment
Remember, your family needs your time, not your money. Instead of buying expensive gifts, or planning luxurious trips, entertain your family through public resources. Instead of buying costly story books, visit the library for story hours with your kids. You can rent movies to spend a good time with your spouse. Buying CDs or story books from a public library can help you save a lot of money. Go for fishing, gardening, and cycling, to spend happy hours with your family.
- Build an emergency fund
Put the extra money into a separate savings account so that you can easily build an emergency fund that can be utilized during an emergency. If you can make sure that you have built an emergency fund, you don’t have to take resort to loans and become liable to repay them in the future.
- Use cash for everything
Instead of using credit cards for buying things, you should use cash. By doing so, you can avoid buying things that you can’t afford with cash. Thus, you will be able to avoid huge credit card bills to pay off every month.
- Go for DIY revolution
The DIY revolution has helped a lot of people to live on less. It allows you to stop buying many items as you can make them on your own. Thus, you can save a considerable amount of money. Stop taking out a loan to meet the expenses. You can easily make your own gifts and decor items to save enough money in the long run.
Sometimes, it becomes difficult for you to resist the temptation of purchasing a particular thing. To avoid such a purchase, you should wait for a few days before buying that particular thing. After a few days, if you still desire to purchase the item, buy it. Many a times, chances are, you will lose the desire to buy the item. By following these simple frugal tricks, you will be able to live a more fulfilling life on less without depriving yourself. Living a meaningful life will help you to get a better financial prospect. So, think about it right now!
You can’t go a day without seeing articles on the pending crash/adjustment/correction to the stock market. Folks are talking about when this giant run-up of the last year will correct back. They point to high P/E ratios, way “out of whack” with traditional measurements. At the same time, others say that reduced regulations & taxes are going to push the market even further. For most of us, it is much too difficult to figure out, so what are we to do?
The obvious answer – re-balance! Each of us who invests should have an asset allocation that determines how much we want in stocks, bonds, real estate, precious metals, etc. This should be based on our “risk tolerance,” where we identify how much risk (and stock market craziness) we want to participate in. For me, my risk tolerance is “moderately high” (it used to be “high”) so I’m into a 70/30 split with stocks/bonds. Mrs. 39 Months likes a lot of cash, so we end up really with a 60/40 split. Note that about ¼ of that “60” is in REITs, which is my way of investing in real estate.
The problem comes when one asset class or another really “takes off” and leaves the asset allocation off track. It is here where smart investors use re-balancing to reduce the risk and prepare for the correction that is due to occur. Re-balancing involves selling a portion of your “winners” (in this case the stocks that have just run up) and buying some more of your “losers” (bonds, REITs) in order to re-balance your portfolio. Re-balancing forces you to sell high and buy low – the quintessential investor plan.
For me, I tend to re-balance twice a year (January & July). Some folks do it more often, but I think you can drive yourself crazy if you do it more often. I also don’t re-balance if something is over a 2% variance (i.e. if I am supposed to have 30% and I only have 28.5%, I let it ride).
Some investment companies make it easy to re-balance. The Vanguard website has a specific section for selling out of one fund and purchasing shares with that amount from another. TRowePrice’s is a little more cumbersome, but not bad. Other brokerage houses, like USAA, make you have to do it all yourself, with your own spreadsheets and calculations. Still, its math, which I enjoy doing.
As an example, I looked at my Vanguard IRA account at the end of the year, and found this:
|Name||Symbol||Current Price||Current Shares||Current Value||% of Portfolio||Amount “off”|
|Vanguard 500 Index Fund||VFIAX||$ 246.82||237.6||$ 58,655.54||19.6%||$6,374.7|
|Vanguard REIT Index Fund||VGSLX||$ 117.55||392.6||$ 46,146.13||15.4%||($6,134.7)|
|Vanguard Small-Cap Index Fund||VSMAX||$ 70.78||805.5||$ 57,011.95||19.1%||$4,731.1|
|Vanguard Bond Index Fund||VBTLX||$ 10.75||7397.1||$ 79,518.65||26.6%||($10,105.7)|
|Vanguard Int’l Index Fund||VGTSX||$ 30.52||1881.2||$ 57,415.51||19.2%||$5,134.6|
Looking at this, I chose to sell of $6,134.70 of S&P500, and put it into REITs (to get back to around 17.5% for each) and sell off the Small Cap ($4,731) and International ($5,134) and buy into the Bond Fund (+$9,865). This gets me close to my original allocation.
Now, if the S&P500 corrects 10%, I still have taken a significant chunk of money off the top and put it into a different investment. I also bond the bonds and REITs when they were down, allowing me to get bargain.
Have you re-balanced yet? How often do you do it?
Mr. 39 Months
For many folks who do crafts work, there comes a time when you have completed a long, drawn out project, and you take the opportunity to do a reset of your space. It is an opportunity to clean, repair & sharpen your tools, clean up the area, take stock of your materials and area, and determine next steps to improve them before you start your next project.
For me, I am an amateur woodworker. With Christmas done, I can get back to the arts & crafts sideboard that I have been working on (still need to complete the drawers and the doors). You can kind of see it in the back there. Before that, however, I clean the shop, cull my woodpile, sharpen up the chisels and planes, and get everything ready for the next batch of work.
I often think this is similar to the end of year financial work that people have to complete. Some of the key items that folks work on right before/right after the New Year.
- Tax planning for year-end, and for the new year (especially in tax-advantaged accounts)
- Capital gains/loss harvesting (done before end of year)
- Rebalancing of the portfolio (I always do this twice a year, Jan & July)
- Review investment performance and determine what changes need to be made
- Review investment performance and make adjustments to next year’s projections based on updated knowledge
With this done, folks can start work in the new year, with their plans in place – able to “hit the ground running.”
For me, I have some minor tweaks to my investment allocation. For tax planning, I prepaid my property taxes, so that I could deduct them for 2017 taxes – but now it appears that this won’t be allowed (still up in the air). Ah well, at least I tried to do something, instead of just sitting there. Finally, I want to look back over the stocks in my value investing “fun” account to see what their performance is, and what the price should be.
Like a lot of FIRE folks, I will have an update in the next week or so on 2017 and goals for 2017, and I look forward to reading other FIRE bloggers results and objectives for the New Year.
Happy new year to everyone in the community!