39 Months

Saturday Linkage

7/11/2020

Joining a Cult: The Financial Independence Counterculture (the physician Philosopher); One of us, one of us…
Slow down … FIRE is not a race (Budgets are Sexy); Goes over the concept of “Coast FIRE” where you reach a point that you don’t have to continue to contribute to your retirement accounts, and eventually you will ge there. So do work you enjoy that just pays the current bills.
My Thoughts on the “Passive Investing Bubble” (Early Retirement Now); Could all the folks investing in the S&P500 be creating a bubble?
The Complete Guide to Withdrawing Funds Early From Your 401(k), IRA and Roth IRA (MinaFI): Good discussion on ways for folks to access their retirement accounts prior to 59-1/2.
Debt Freedom Doesn’t equal wealth (Budgetnistablog); It’s a step along the path
States Without Income Tax: Is There a Benefit to Moving? (you be three); States have to make their money somehow – so depending on your stage in life, the different states tax codes can help or hinder you.
The Paradox of Thrift While Choosing Financial Independence (medimentary); People save for a future purchase, an experience, or to maintain a certain lifestyle in the future.
15 Deep Insights about Death to Understand the Meaning of Life & Live Fully Alive (slow.co) Some interesting observations, brought on by the death of a beloved pet.
The Bear Market in Happiness (a wealth of common sense); Common sense thoughts on finding happiness, especially in the age of Chinese Covid-19
Five Milestones You Must Reach Before You Retire (Retirement Manifesto); Some key things you must know/have done before you can be ready to retire.

Earlier in the year, I wrote about re-looking at our spending a couple of months in, to make sure our budget was tracking fairly well. Depending on your viewpoint in the FIRE community, you can be rather blasé about your budget (maybe just pay yourself first and spend the rest) or you can be very nitpicky. We tend to fall more towards the former category, but being very frugal, we typically end each month with a little more than we started. We’ve also reached that point in our lives (mid 50s) where we have purchased all the major things we need/want (cars, furniture, home, clothes, etc.) so we just have to maintain, rather than increase.

It does make sense, however, to occasionally review your spending, so you don’t get surprised at some point. With the Chinese Covid virus hitting, it has caused a lot of folks to alter their spending habits, in some cases significantly. For example, we are both working from home, so our grocery bill has gone up significantly, but the money we spend to eat at work (coffee, lunch, snacks) is non-existent. Our vacation and entertainment money has also seen a drop off.

So how have we done for the first half of the year?

Here is my earnings, deductions, and expenses for July 2020, as a percentage of total income.

Revenue
Area	Category	% of total
Earnings	Regular Pay	99.4%
Earnings	Cell Phone reimbursement from my company	0.4%
Earnings	Expense Reimbursement	0.2%
Total	Total

Deductions
Area	Category	% of total
Deductions	401K Roth	4.5%
Deductions	Dental	0.5%
Deductions	H.S.A.	4.1%
Deductions	Long-Term Disability	0.3%
Deductions	Medical	3.2%
Deductions	Spousal Surcharge	0.6%
Deductions	Vision	0.1%
Deductions	Wellness Credit	-0.5%
Total	Total	12.7%

Taxes
Area	Category
Taxes	Federal Income Tax	14.3%
Taxes	Medicare	1.3%
Taxes	Social Security	5.7%
Taxes	State Income Tax	4.8%
Taxes	NJ Family Leave, Disability, Unemployment, etc.	0.6%
Total	Total	22.9%

Expenses
Area	Category
Area	Category
Auto	Auto Fuel	0.4%
Auto	Auto Repair	1.1%
Auto	Auto Registration	0.0%
Auto	Auto Tolls	0.1%
Charity	Charity	3.1%
Clothes	Clothes	0.3%
Entertainment	Books	0.1%
Entertainment	LA Fitness	0.2%
Entertainment	Postal/office supplies	0.1%
Entertainment	Hobby	1.2%
Food	Groceries	3.1%
Food	Dining Out	0.9%
Food	Food/Snacks	1.4%
Home	Home Repair	2.0%
Insurance	Life Insurance	0.3%
Insurance	Home/Auto Insurance	1.4%
Investments	Investments	33.4%
Investments	Savings	0.6%
Medical	Medical – H.S.A	0.1%
Other	Other	1.5%
Other	Haircuts	0.1%
Taxes	Property Taxes	3.3%
Utilities	PSE&G	2.2%
Utilities	Verizon	1.9%
Utilities	Water Bill	0.2%
Total	Total	59.0%

Some things, which stuck out after doing this analysis:

Still have about 5% “unaccounted for” in spending. This ends up being the extra we have that has gotten plowed back into savings.
Taxes still take a big bite (22.4% of gross pay for Federal & State income + property tax). Since we aren’t paying a mortgage anymore, this is our biggest hitter
Investments coming in 33.4% of gross pay (if you count the Roth, its 58.3% of take home pay after taxes & work deductions). Doing a fairly good job of putting stuff away
Medical is coming in at 4.2% of gross – with just about all spending coming out of the H.S.A. We still have funds in it, so its been a good choice for us.
Food and Utilities each around 5%
Charity is about 3.1% of gross, about 9.6% of net pay coming in. We don’t itemize, so we get no deduction from this on our taxes, but we try to give as much as we can.

So like most, our home utilities and food have gone up, our spending related to our work and going out have gone down, and we seem to have spent less over the last six months.

The only big surprise for us this year (other than Covid) was the tax bill. We ended up owing $2,600 federal and $600 to the state. We adjusted our tax withholdings up (that is why the percentage is higher now than my February update). We continue to be on track and in fairly good shape, even with all the shutdowns. Mrs. 39 Months has had her hours cut 20% (one day/week furlough) but I’m still earning. We appear to have stayed relatively within budget and continue to save large amounts of our take home pay.

How are you doing with your budget and spending so far in 2020? How has Covid affected you?

Mr. 39 Months

US Independence Day!

I’ve always loved this holiday. As a patriotic American and a former US Army Soldier, I feel a rush of pride on this day, as the US “laid down a marker” on the kind of society they wanted to have. There was a long war to fight, and then hundreds of years of trial and error as we attempt to move to that kind of society – to live up to the promise of the Declaration. While we still have a long way to go, we have come a long way, and as a society we can be proud of what we and our forefathers have created.

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed…

Such a radical concept at the time, the idea that governments derive their power from the people, not from a ruler, a divinity, or some small minority. We the people are the ones that get to decide our own fates. It is very much in line with the concepts of FIRE that we have control of our own lives and of our government.

Today, we celebrate it with barbeques, parades, and fireworks. We will have a few friends over on our back porch for BBQ, good discussions and good times. We may go out and purchase a few fireworks (small, safe ones like sparklers) to celebrate our good fortune. Go out and enjoy your freedom!

Mr. 39 Months

I’ve reached 39 Months!

July 1, 2020

Well, 39 months ago (Apr 2016), I started the blog, with the idea of tracking my progress, as I sought to reach FI within 39 Months, by July 1, 2020. My hope was that my comments, thoughts, mistakes and learning might assist others in their pursuit. I also took the opportunity to share some of my hobbies and books that I read on the subject.

At the beginning of 2017, we had already reached a major milestone, in that our Net Worth was over $1 million. We had paid off the last of our home loan, so we owned our house free & clear.

Real Assets (home, cars, etc.) – $303,237
Liquid Assets (savings, checking, emergency funds, etc.) – $139,572 (Mrs. 39 Months likes a large emergency fund)
Investments (IRA, 401K, small brokerage, etc.) – $824,129
Debt: $0
Net Worth: $1,266,938

Based on the money we were sticking aside every year and some expected returns (3% inflation, 9.8% stock returns before inflation, 4.6% bond returns before inflation) we projected our net worth increase each year. The net worth would grow to $1,406,316 (not counting the house). Using the 4% rule, we came to a little over $56K/year, which, when combined with our future social security (big if) I felt was sufficient. I created and published a drawdown plan on the blog (and its one of my most popular posts, as I have updated it as the time has gone by).

Its been an interesting and rocky road over the last 39 Months

Home value has not improved significantly ($321K now vs. 297,950 in 2017) – about 3% per year
.Good 2017, wth 12.3% increase in net worth. No debt, kept funding
Terrible 2018, with 1.6% drop in net worth due to market crash
Awesome 2019, with a 22.2% increase in net worth
Crash in 2020, with a -5.9% loss in our investments to date

Also, our assumptions for our retirement have changed significantly. Last year, we engaged a financial planner, because Mrs. 39 Months wanted a second opinion on the potential for retiring early. We had a series of meetings with him, which helped me appreciate some of the nuances of retiring early and its impact on the finances. We had some disagreements (future inflation, return on future investments, etc.) but I ended up adopting a lot of his numbers in our analysis.

After discussions with Mrs. 39 Months, we set our annual retirement spending at $78,000/year base (going up each year for inflation)
Inflation at 3.25%, with 6% inflation for medical inflation
A 7.2% return on investments (based on a 60/40 allocation) or roughly 4% above inflation rate
Drop in lifestyle spending (travel, dining out, etc.) by 35% after age 75 (pretty typical)
Get social security at age 67, but discount mine (the higher wage earner) by 50%. I think SS will have issues in the future, and one of the ways they’ll make it work is to cut benefits.

So, with that it mind, where are we at the 39 Month mark? We are actually pretty close to what we thought back in April 2017.

Net Worth around – 1,704K (vs. goal in April 2017 of $1,716K)
Real Assets (home, cars, etc.) – $328K
Liquid Assets (emergency fund, etc.) – $167K
Investments (401K, IRA, brokerage) – 1,209K

So are we financially independent at the end of 39 Months? No.

Based on our new assumptions (6% medical inflation, 7.2% returns for stocks, etc.) the money we currently have + taking social security at 67 means that we would be able to fund a lifestyle of roughly $64K per year (not counting use of a reverse mortgage). We pretty much fell in line with the original plan, but the needs of retirement have increased. As I noted before, this was after consultation with Mrs. 39 Months, so I think the $78K number is a lot more “solid.”.

Based on the new analysis, assumptions and the current market conditions, it appears that we will achieve FIRE in 2023 (about 30 more months). In the meantime, I’m looking at side hustles that I can use to generate income after we hit FI and potentially stop the 9-5 grind.

Thanks for reading over the last three years, and I hope to hear from you on my blog in the months and years ahead!

Mr. 39 Months

Saturday Linkage

June 27, 2020

I quit my job at the start of the pandemic to launch a company. Here’s what I’ve learned in the first 90 days. (The Profile)
Robinhood increases guardrails on options trading in the wake of a customer suicide (CNBC); How does a 20-year old get access to funds to accumulate $730K of losses?
Consumer Addiction and 5 Ways to Beat It (Physician on Fire); Ways to keep from spending on consumer goods.
What’s dragging down your beloved VTSAX? (Freddy Midlap). Discusson of the financial and energy sectors effect on the index.
How to turn your side hustle into passive income (Budgets are Sexy):
When your Money makes more Money than you (Banker of Fire): As you move on in your FI journey, eventually you hit this point – and that is when you know you are getting close.
Is the Stock Market going to Crash? (The retirement manifesto); Short answer – yes! The market goes up & down, sometimes violently. Prepare for it.
Roth 401K vs 401K – which is better (of dollars and data); Good analysis. My vote is for the Roth 401K.
How much will you lose if bond prices fall? (And what if they rise?) (Monevator); Interesting analysis. I’ve started to rethink my allocation in bonds, and this reinforces my thoughts.
What I wish I knew (1500 days); common lament of folks who found the FIRE movement later in life – the time wasted!

Family

This week, I’ve had both of my brothers come by to visit us for the week. My younger brother is in town for business (his company does environmental testing, with software and hardware). He’s doing some software upgrades for one of his customers. He tried to get them to do it remotely, and offered to send them some pre-loaded hardware, but they wanted him to “do it live” so he’s up here.

My older brother, when he found out, decided to come down as well. His work allows him to travel on his own, and I think he just wanted to get out. His son is also a resident doctor, working just across the river, and this would give him the chance to see him. So my house turned into a hotel for the week. We were able to set it up so they each got their own room. Nothing worse than having to share a bed with your 50+ year old brother!

Its great having them here, although we get on each other a lot (politics!) We know and love each other, and while busting on each other constantly (as brother’s do) we know we would do anything for each other, including giving our last dime to help the other out.

Often folks in life lose sight of the family part of their social life, especially as they are starting out in life. They go to school, move away for a job, start their own families, etc. Its only later in life, as friends move away, as contacts fade, as job satisfaction ebbs, that we circle back to the ones that were always there, and always will be there for you. That is why, whenever asked, I urge others to make up with family members – because in the end, they are the ones who will always have your back.

Stay healthy!

Mr. 39 Months

Saturday Linkage

June 20, 2020

Building a Dream (Retirement Manifesto): The two of them are retired and starting to build a dream workshop. Thoughts on pursuing your dreams.
What’s your magic number? (Rational Walk); Good discussion on your “number” and the costs and benefits of achieving it, as well as potential timelines.
Emotional Benefits of Gardening (Princeton Environmental Institute)
How to start a simple garden (Simple Dollar); Basic steps to get started in a small space (even a windowsill in your home!)
Divided by a common drawdown dilemma (Monevator); Interesting discussion on the concept of living off dividends/interest vs. selling off capital gains as a method of paying for retirement.
Married to a selfish husband (one frugal girl); issues when one is s spender and the other is a saver. How do you work that out?
How to get a fantastic deal on a new car (clipping chains); Methods to improve the amount you pay for a new car.
Slow Down…FIRE is not a race (Budgets are sexy); Gentle reminder that you need to live life as well as save for FI.
Life Insurance in Early Retirement – cancel or keep it? (Route to Retire). Good article on the pluses and minuses of keeping insurance even if you’ve achieve FIRE
How to Make money blogging (Think, save, retire); article goes through ways to monetize your blogging experience.
Everything is back to normal (slightly early retirement); how things are going in one of the states which has opened back up after Covid.
Return to Normal? Not exactly (Slowly Sipping Coffee); Interesting list of changes to his life after retiring early. Its not all Roses and Ice Cream.
The Value of Free speech (Retirement Manifesto); In these times, its important to speak out about these kind of topics, rather than let folks be silenced

Sometimes the simplest tools are the best

The world of FIRE has developed a wide array of analysis tools and software methods to optimize your finances, your schedules, your travel, and your lives. That is why reading the blogs is so fascinating, because there always seems to be something new to learn, to try out, to experiment with. It can be dizzying at times, the pace of change and new technology.

However, there is an old bit of wisdom that states “sometimes the simplest tools are the best.” I’ve heard a lot of financial experts say that picking the best stocks/mutual funds/bonds is secondary – the key is to start investing, as early as possible, and to continue with it. For budgeting purposes, many folks do fine without budgeting by just “paying themselves first” and then surviving on the rest. To avoid “lifestyle creep” a simple method is to set your lifestyle, and then every time you get a pay raise, you just take the lion’s share of it and automatically deduct it from your account and invest it.

All of these are very simple methods to achieve financial independence, and if you perform them, you are 90% of the way towards achieving your goals. Do them early in your life, and you can achieve FI early.

In the photo above, I was working on boxes for TKD woodworking. In order to reinforce the corners, I needed to cut 45-degree grooves in the box corners and glue in “splines” of wood. By making these splines of a contrasting wood (in this case Walnut) it enhances the look of the box. The simple “jig” used to do this on the tablesaw is literally four pieces of wood, glued and screwed together, running across the tablesaw. Simple tool, but very effective!

Look at the simple things first in your FI work, and you will be going a long way to getting to your goals!

Mr. 39 Months

Saturday Linkage – a little late

Sorry its a little late. I got tied up with some major yard work over the weekend (with a lot of poison ivy) so didn’t get to this. Enjoy!

Short-Term vs. Long-Term Financial Solutions (The Simple Dollar); Some are quick hits, some help you play the “long game.”
Milestone reached: Early retirement phase (Leisure Freak); Good discussions on the ages phases of retirement and how they have budgeted and drawn down their money for each phase
Comparing Median Incomes And Home Values Across America (Accidental Fire); In case you are interested in permanently working from home and cutting your costs
Things I learned while taking a sabbatical (Budgets are Sexy); What a lot of us are interested in – taking some extended time off, but not necessarily “checking out” of work
Don’t stop investing during a Recession (Retire by 40); Dollar cost averaging rules the roost, and you should take advantage of stocks “on sale”
Who is driving the stock market (Irrelevant Investor); In line with what I’ve discussed, the fed injecting money, a lot of speculation, and the Chinese Flue not being as severe as originally thought.
The Fixed Income Conundrum (Retirement Field Guide); Treasuries low, dividend in danger, savings not paying. How do we create a stream of income?
US Fund Managers flopped in the Crisis (Evidence Investor). To nobody’s surprise, even in times of crisis, active managers underperform the market (i.e. index funds).

TKD Woodworking – Liability Insurance

Is getting close to the time when I want to start trying to sell my product online via Etsy, Ebay, etc. In order to protect myself and the financial assets I have as an individual, I’ve done a couple of things:

Created an LLC – TKD woodworking. The idea is to create a “Limited Liability Company” and sell through this vs. selling as myself. It will provide some protection of my personal assets, provided there is no “gross negligence” involved
Created a separate checking account for running the business, with a separate credit card for charging items. Since I do not mix my personal and professional assets, it will provide a little more of a shield against a lawyer “piercing the veil” and getting at my personal finances
Purchased Liability Insurance, charged to the company (TKD Woodworking). In this case, I went through my regular insurance company (USAA) and though they do not insure small companies, they connected me with the Hartford Co. which does.

For the insurance company, they had a good idea of what I was trying to do (small craft company, selling online) and had some interesting questions to ask before providing me a quote:

Was I making furniture, or just small items (cutting boards, boxes, etc.) – I assume furniture would mean more liability
Was I making anything with stairs, ladders, etc. – again more liability
Was I making anything specifically for children (toys, etc.)

There was a host of other questions on the product the business would be producing. All of these items point to additional liability issues which I would need to consider if I chose to move my business in that direction.

In the end, with an assumed sales of roughly $2,000/year, a $1M liability policy is going to cost me $458.78/year. While that may seem a little steep, it will help me sleep at night, knowing I’ve got some protection for my personal assets.

Mr. 39 Months