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

Good post at Early Retirement Extreme about having the right motivation when you retire early

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.

Lack of intrinsic motivation will destroy your early retirement

Great Post at Slowly Sipping Coffee on benefits of FI for job growth

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.

I’m Getting Pulled up the Corporate Ladder…

“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

 

Spending less doesn’t mean living less: How?

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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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.

  1. 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!

Have you re-balanced yet?

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?

African elephant female and her baby elephant balancing on a blue balls.

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

Clearing your “Shop” for the next project…

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!

 

Mr.39 Months

 

Goal setting for 2018: Traditional vs Zero based

It’s the end of the year, and that means folks in the FIRE community taking stock of where they are at year-end versus their goals/objectives, and then setting new goals for 2018. For many of us (the really crazy ones) this is one of the best times of the year, where we get to pat ourselves on the back for goals met, rationalize why other goals weren’t, and dream about the future – the sweet, sweet financially independent future.

Steven Covey, in his landmark book The Seven Habits of Highly Successful People, wrote about the need for people to create a personal mission statement and to define their roles in life prior to trying to set substantial goals for yourself. An example of life roles might be:

  • Spouse
  • Parent
  • Christian
  • Neighbor
  • Change Agent
  • Scholar

He then wrote that, once you identify your life roles, you can think about the long-term goals that you want to accomplish in each of these roles. He believes that, if you take the time to determine your personal mission statement and roles, then the goals you set are often dramatically different from the goals most normal people set.

He goes further to say that an effective goal focuses primarily on results rather than activity (example: increase weight lifted by 10% versus “go to the gym every other day). These sort of  goals give you better information on your efforts, how to get there, and when you have arrived.

One of the other areas in goal setting that you might benefit from is a move from traditional historic/incremental budgeting to more of a “zero-based budgeting” model. The traditional method is the most common method of budgeting and is used in most financial institutions. It is based on historical information and involves an incremental approach. In simple terms, the managers take last year’s figures and adjust for growth and/or inflation, plus or minus any significant changes in expected results. A person could use this both financially (to track his budget increase) or personally (to show weight loss). Just take the previous years figures, make a few alterations, and “wham” – you have a goal!

Another way of budgeting is zero-based budgeting, which originated in the 1970s. Many businesses will budget and plan out things to maintain financials. In the past, businesses would only look at specific things and would assume that everything is already in place and does not need to be double-checked. However, in zero-based budgeting, everything that is to be budgeted needs to be approved. Since zero-based budgeting requires an approval for budgeting, this means that budgets are started from a zero-base, with a fresh decision on everything being made every year.

Dave Ramsey has a good blog post on Zero based budgeting

I like to think of zero-based budgeting as starting from scratch. It often leads you to different ideas and perspectives, and can be used not just for budgets, but for all aspects of goal setting. You sit back and think about areas that you haven’t addressed before, but that you might want to pursue (new hobbies & crafts, places to travel, etc.) and the creative juices start flowing. It can be very similar to that moment in time when you first got the FIRE bug, and everything seemed new and exciting.

Other types of budgeting:

  • Priority based: Priority-based budgeting is designed to produce a competitively ranked listing of high to low priority discrete bids for resources which are called “decision packages”.
  • Activity based: Activity-based budgeting differs from traditional budgeting in that it concentrates on the factors that drive the costs, not just on historical expenditure.

So as you start setting your goals for 2018, don’t just limit yourself to basing your goals on 2017 – take the opportunity to brainstorm new ideas, and try new things!

 

What are you planning to do for 2018?

Mr. 39 Months

 

Hat tip to Global FS Consulting for definitions on various budgeting methods.

Excellent article on preparing for the next downturn at Get Rich Slowly

In an article at Get Rich Slowly, JD Roth goes through some analysis on the potential for a pending recession (we’re overdue) and what we should be doing to prepare for it.

Some of his simple steps include:

  1. Bolstering your emergency fund
  2. Balancing your budget (don’t succumb to lifestyle inflation when times are good)
  3. Double-down at work, rather than seeking a new job (since recent hires might be the first ones let go at your new company)
  4. Make sure your asset allocation matches your risk tolerance (I rebalance every 6 months, and I’m due to relook at it Jan 1)

Overall, its an excellent read, with some good points.

Mr. 39 Months

Losing the battle with Mrs. 39 Months about Christmas Decorations

It’s the holiday season, and as everyone knows, the world is full of companies trying to commercialize everything and sell you bunch of stuff you don’t really need. I wrote about how we try to resist this, and how others can as well.

Unfortunately, I can’t say we are doing everything right in the 39 Month household. Mrs. 39 Months plays at being cynical, but she really does seem to love this season, and goes out of her way to purchase additional decorations for the inside of the house (the outside is pretty much in place now, with few additions over the last 5 years). Call it the Christmas spirit, call it “nesting” call it whatever – she enjoys adding to our interior decoration.

While I could complain about it, or question why she is spending the money on the items, after 31 years of marriage, I have learned a few things – and after multiple years pursuing FIRE, I have learned others. The key is living deliberately, and deciding what you want to spend your money on. If something truly does give you joy, and you are spending cash on it (instead of going into debt) then you should feel free to spend the money on it!

Why go through 10 years of misery just to say you are financially free, and can start living like you want. This sounds an awful lot like the old retirement plan (work till 65, then live it up). That isn’t the way the FIRE community is working their plan, as evidenced by all the folks whose blogs and podcasts I take in.

We are already fully funding our retirement accounts to the max, and putting away more funds. In fact, in 2018, we are going to go from 35% to 50%+ of our pre-tax money going towards achieving financial independence. Smiley faces all around.

So go “splurge” on something you would like, especially if it’s not going to come anywhere near breaking the bank. Enjoy life now, and enjoy it once you reach FIRE.

 

Happy Holidays to everyone.

 

Mr. 39 Months