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    Financial Independence My Most Recent Read: The Millionaire Next Door

    August 09, 2018

    Financial Independence My Most Recent Read: The Millionaire Next Door

    My Most Recent Read: The Millionaire Next Door

    Posted: 09 Aug 2018 02:08 AM PDT

    Hey everyone!

    In the reading list of this forum (https://www.reddit.com/r/financialindependence/wiki/books ) I see many interesting books that I might read in the future. I recently read "The Millionaire Next Door", which tells the story of how the typical millionaire doesn't live in Beverly Hills or on Park Avenue – they live next door. Traits about the millionaire population were presented throughout the book, and I was surprised to hear about some of them!

    I think that it's an interesting read, with many great takeaways. Here's a list of my top 10 (no individual order):

    1. Wealth does not equal income

    2. Playing a great defense (frugality), rather than a great offense, is the most common path that leads to wealth

    3. Invest a lot! Millionaires spend, on average, 20% of their income every year buying assets.

    4. Invest over the long run. 90% of millionaires hold their investments for more than 1 year. Only 1% of them are traders.

    5. Chose your significant other carefully, it's the most important financial decision of your life

    6. Most millionaires value financial independence and freedom higher than social status

    7. Be goal oriented

    8. Participate fully in 401k and similar – especially when your company matches deposits

    9. Maintaining luxuries does not only require a lot of money – it also requires a lot of time

    10. Be very careful about giving your children cash gifts, usually you're just making them a disservice

    If you are interested in reading the whole book, you can easily find it on Amazon or similar.

    I've also found some videos on YouTube that deliver these key points, in case you don't have time to read the full thing, or if you just find videos to be a more enjoyable/easier to digest format. Here are a few ones that I liked:

    https://www.youtube.com/watch?v=Hxi2JzI3dJc

    https://www.youtube.com/watch?v=C0OAfBKx49o&t

    https://www.youtube.com/watch?v=p41I7VWfkI8

    Enjoy guys!

    submitted by /u/harryfinance94
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    The mistakes I made

    Posted: 09 Aug 2018 06:43 AM PDT

    I've created a new account for this post (and others I may make on this forum, because I give away more info than I'm usually prepared to).

    I'm in my early 40s now with far less wealth than I ever planned, even though it might seem a lot to some others. I have just passed the £400k mark ($516k) including all assets, house etc. From this point I'll only post figures in £ to keep things simple. My target for the lifestyle I want to live is £1.6m out of which we'll either rent or buy a place, so subtract the cost of house. The planning calculators I use tell me I will only be retiring in my early 50s, which is not what I wanted. I could retire on a lot less, but I don't think I'd be as happy. I like holidays, a lot. I want to take the whole family on one or two ski trips each year. I want to take them on other nice holidays each year. I want to own a good camper-van in the future (pricey to buy, pricey to maintain). While this isn't completely lavish, it does add up. Our target area for retirement is also not cheap. It is an area in France near the coast. We have friends and family there. I also want a nice house, since I've never lived in a really nice house myself. I come from a poor family, flat shared in London for most of my working life, and now mortgage on a small 60 sqm place in a modest area. So for me, it's a dream to live in a beautiful house in a nice area. Apart from that, I'm relatively frugal compared to friends. I take my own lunch to work, I make my own coffees, we don't eat out all that often, I've stopped blowing loads on nights out with friends. We prefer a walk on the river or hills to shopping. We run a 14 year old car, cheap to maintain which we consider value for money because we use it a lot. I earn ~£115k pa. After tax and expenses I save about £62k, which I think is a decent savings rate. I'm married but we've delayed having kids, though we both want two (yes, I'm going to be an old dad). That will increase my expenses in the future so the savings rate is going to go down, I expect, unless I can increase my income. My partner is not so much into FIRE. She also doesn't earn a lot (£32k pa). My asset distribution is liquid assets 90% equities, 10% cash for emergency. After a recent remortgage to extract equity, my house equity is about £70k. Value is about £450k. Our mortgage rate is 1.6% pa which is insanely cheap and I consider free money, hence I borrowed to add more to the market. If this changes, I will sell stocks and repay the mortgage. I don't own bonds because I'm taking a riskier approach to achieve my aims and I also consider my house to act like a bond. I live in London, HCOL area. I plan to use this house as either income or equity in the future to move to a only slightly LCOL area.

    I summary, the choices I'm making about future retirement are conscious and I'm aware they push it further away. I'll continually revisit these choices.

    Here are some of the mistakes I've made, my own fault or otherwise, while younger. This may prove useful to some people and I might even get advice out of this.

    1. Not having anyone to give me sensible advice when I was young. I've always had a goal to retire young but had no-one explained to me fully the benefits of sacrifices while you are younger for huge compounded gains when older. I started making good money back when I left university in the late 90s (IT boom) and thought life would always be easy and I'd just save hard in the future and retire young. I made chunks of cash but I kept taking career breaks to go travelling for a year at a time over the next 15 years. As a result, I enjoyed my life immensely but never saved up a large amount (my savings always hovered around £50k).
    2. I never bought a house while young. This was incredibly stupid. I flat shared for so many years and didn't click that in the UK you get tax breaks for having lodgers. I could have done the same thing (shared) but collected the income from the lodgers instead of the landlord doing this. I also would have benefited from the massive capital gains the UK has seen in the last two decades. Once I finally bought, I had to move to a worse area because the area I rented was out of my buying range. I don't see us experiencing the same house price growth over the next 10 years.
    3. I fell in love with someone who isn't a high earner and isn't interested in being one. She is an amazing, interesting, funny, beautiful, kind, generous human. I'm unbelievably lucky to have her. She doesn't care about my money and constantly tells me we should just move to a cheap area in France now and we'll survive somehow. She comes from a moderately wealthy background but not rich. She's had her schooling and lifestyle funded by parents and I don't think realises what "no safety net" looks like. But for her, happiness in the moment and in her job is much more important now than happiness later. She doesn't look to the future and see that I just don't want to be tied down for another 20-30 years to any job. I want to be free to take whatever risk I want to take. My partner for me is not a mistake. I am so happy I found her. But if you can find the same partner, who also happens to earn a lot, even better. There is just no denying that a high earning partner will make one of the biggest differences to your FIRE ability out of anything.
    4. Risk taking while young. The risks I took were quitting jobs and travelling. I loved it. I've had a great life. But I never took risks in my job. I always just took the next thing that was offered, decent pay but not spectacular, and got on with things. I hate interviewing and am not a salesperson (an interview is a sales pitch). I normally get the jobs that I interview for but I still hate the process. It was only much, much later in my career that I realised I was terrible at sales even when in a job and I therefore was the person who got things done, delivered on everything, exceeded expectations, got good reviews, but never got promoted. I didn't even care because I was always eyeing up my next mini-retirement. I now realise I should have used the system to my advantage and quite my jobs way more often for another job. I've been promoted and increased earnings several times in my career, but only through changing jobs. I should have done this more.
    5. Not staying put and saving harder while younger. Career breaks are very, very expensive. Loss of earnings and outgoings, never mind opportunity cost for salary rises, etc. If current me could go back to younger me, I'd say "quitting your job and travelling will be fun, but those memories will come at the massive sacrifice of a much longer working career". I'd probably do it once, maybe twice, but not more. It is really hard to say this but I often just shake my head thinking I'm going to be working into my 50s to achieve what I thought I'd achieve in my mid 30s.
    6. Learn about investing. Even now I'm stupidly uninformed compared to some, but I am now making the most of all the tax breaks I can and the low cost tracker funds. Back in my youth, apart from a few small pensions, I just dumped everything in a cash account earning around 4% at the time. Not bad for cash, but terrible for the long term.

    I'm now at a relative peak in my current career. I'm not sure I'm management material as I find it hard to deal with the politics of this. I prefer the preciseness of the technical art where I know how to craft solutions. But... if I want to FIRE sooner, management would be a way to achieve it. I'm a likeable guy, I get along with pretty much everyone, I'm just not opinionated or outspoken or decisive enough. Maybe these are learnable skills.

    Anyone in the same position where you're slightly depressed (edit) a little frustrated from time to time that you're going to be FIRE a lot later than you wanted? Any advice on ways to either deal with this or achieve aims sooner?

    submitted by /u/turbobaron
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    Daily FI discussion thread - August 09, 2018

    Posted: 09 Aug 2018 04:08 AM PDT

    Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply!

    Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked.

    Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts.

    submitted by /u/AutoModerator
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    Any educational resources on increasing income?

    Posted: 08 Aug 2018 07:54 PM PDT

    I understand that decreasing your expenses are important as your investments can meet that passive income target a lot faster.

    But something that doesn't get talked about enough is increasing income.

    Are there any education resources (books, blog posts) which touch on the skills and knowledge you need to increase your income?

    EDIT: I suppose I should be more specific. I'm not talking about investments. I'm talking mainly about job income, but it could also be ideas for side income. Basically the 3 main areas to focus on are - increase income, reduce expenses, invest. I'm talking more about the increase income part (which does relate to investments but I like to separate investment decisions into another category)

    submitted by /u/IntuitionaL
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    Help me help my wife understand

    Posted: 09 Aug 2018 12:54 PM PDT

    We just got off a phone call with our Vanguard advisor who is very happy with our situation. My wife looks like she wants to go die somewhere. FA says we can swap our equity for a house in a new location we're thinking about. All good there. Then she says with our savings and the social security that we'll receive in 12 years we can retire now if we can live on 50k. I would probably keep freelancing a bit to get us to 60k which is our current living expense after mortgage which is accounted for by the swap. My wife is instantly depressed because she associates 50k as being poor whereas I see it as essentially what you get from a 100k job after taxes and mortgage expenses. Am I wrong? Trying to get her to see this a different way.

    submitted by /u/FIREthrowaway2018
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    I'm not sure if this is an appropriate venue to ask this, but since the Roth IRA has only existed for about 20 years, and there have been restrictions on contributions, what are some of the higher balances people have in those accounts?

    Posted: 09 Aug 2018 12:28 AM PDT

    Plan for Parental Care during Road to FI

    Posted: 09 Aug 2018 10:48 AM PDT

    I know that parental care has always been a hot button issue in this sub. For the purposes of this thread, there really is no debate for me - my wife and I have agreed to take care of my Mother in Law when she is older. The question is how to do it in a way that does not greatly impede our path to FI, which we hope to achieve in 10-15 years (currently 30).

    So I came up with a plan. My MiL will be immigrating to the US sometime in the coming year. She will be a green card holder for 5 years then become a citizen via naturalization. She has no assets and no income. My plan is to make sure that she has at least access to minimum social security benefits, and more importantly, Medicare coverage, after 10 years.

    The plan is to hire my MiL as a 1099 contractor to help out with house cleaning and babysitting. She will be living with us rent free. I plan on paying her the federal minimum to qualify for SS, which I believe is around 5k to 6k a year. Doing so as a 1099 contractor will ensure I do not get tangled with employee taxes. My MiL will file her own taxes with quarterly withholdings, which will not be much given the low income. This way, after 10 years of work, she will be approximately 65, and will be able to qualify for a very small SS benefit, but more importantly, access to Medicare A coverage.

    The cost of this arrangement for me and my wife is basically the payment of $5k to $6k annually to my MiL for 10 years. I think this is the best way for us to brace ourselves for the likely high amount of medical expenses that will come our way when she gets older. Plus, the added benefit is that my MiL will have some spending money, plus we are getting a very useful service in return (my wife and I are really lazy people and our house is a mess). Is there a down side to this? Given that not caring for my MiL is not an option, paying 50-60k over 10 years to ensure that she has at least some sort of safety net is a pretty good tradeoff, right? According to my calculations, it should delay our FIRE path by only one year, which is not bad at all considering the peace of mind we will have with my MiL's care.

    submitted by /u/fantasytensai
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    i think i have arrived. not through the usual route. can you guys check my figure and give some advise?

    Posted: 09 Aug 2018 06:58 AM PDT

    i only learnt about fire very recently.

    due to my upbringing, i never trusted investment into shares etc. all of my monies are in property.

    here's the fact.

    i have an investment condo in central London with mortgage. my net profit after tax and expenses is about £400 per month. this is not much but i am planning to sell it later in life if i need cash for nursing home. if i sell it now, i can make about £300k in profit.

    my main residence in London is fully paid for. i can rent it out long term and make a profit of at least £3000 per month after tax.

    if my wife and i were to quit now and go Airbnb around the world, we have £3400 spending cash coming to us every month.

    we want to spend the next ten years living in places like south America, southern Italy, some places in Asia.

    maybe after that, we will come back to UK. sell the investment property and buy a small cheap place for ourselves.

    i know rental is subject to market movement and sometimes it is left empty. i have been in this business for more than 20 years.

    any flaw in this plan?

    we are counting on the NHS for medical cover if we need to.

    submitted by /u/ukfi
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    When can I start coasting??

    Posted: 09 Aug 2018 10:13 AM PDT

    I turn 40 in 6 months and as behind as I am, I'm trying to figure out if (scatch that...WHEN) I can COAST fire.

    D0/monthly).etails: Single/no kids in MCOL city working from home (renting). ~95k income with 8% annual bonus (income was in the 40s/50s up until about 3 years ago). ~$55k in 401k, ~15k in emergency fund (regular Chase savings), no debt, no car. My budget is below (just finished reviewing my expenses in Mint for the first half of this year for the first time ever). Small *private* pension possible at age 65 (sample amount: it reaches ~1k/monthly around age 46)...*no* COLA. ETA: I'm saving 15% into the 401k (~950/monthly) and my employer matches 5% (~15

    I have trouble strategizing a long term plan and am trying to figure out if I can COAST fire and if so, how soon? 50 is ideal. From what I'm seeing my expenses are roughly ~36k...I can't wait until I have a million to quit working (high stress job, burnout, etc., etc.,). Thoughts? Things I can to do get to coast FIRE quickly? (I thought about buying a home and renting out a room or two to cover my mortgage as being a potential option to move things along.) Just trying to get an idea of what others would do (where you would cut, where you'd be putting that $1500, if you'd divert any savings to a house down payment, what age you'd shoot for to coast, etc. etc. etc.).

    Rent/water: 1240

    Groceries: 400

    Ridesharing: 180

    Internet/cable: 110

    Restaurants/eating out: 50

    Beauty: 100

    Student loan: 91

    Electric: 80

    Mobile (cell):80

    Doctor: 60

    Entertainment: 50

    Shopping: Other Shopping (going out, clothing shopping, hobbies): 50

    Gifts and Donations: 50

    Household: 50

    Gym: 30

    Rental insurance: 20

    Savings (EF): 1500

    Travel: 250

    Total: 4391.00

    Difference: 7.00 (total income after taxes/insurance/401k monthly=$4398)

    submitted by /u/BrightEstablishment
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    Safe Withdrawal Rates vs. Spending and Policy Uncertainty

    Posted: 08 Aug 2018 06:55 PM PDT

    33/M/Single. If I FIREd today, my first-year withdrawal rate would be a very safe <3% because:

    • Taxes: Most of my assets are in Roth accounts and taxable accounts with high cost bases and most of my income would be dividends and capital gains. Therefore, taxes (both federal and state) would consume no more than 5% of my withdrawals even if I started a Roth conversion ladder with my small traditional IRA.
    • Healthcare: I'm young and healthy and would likely qualify for substantial ACA tax credits.
    • Housing: My rent is a couple hundred dollars a month below market because I snagged a rent-controlled apartment at the right time.

    On the other hand, I expect my expenses to rise much faster than inflation over the first 25-30 years because:

    • Taxes: The government's running huge deficits, so the favorable rates on dividends and capital gains may go away. Furthermore, my investments will have hopefully appreciated, so a larger portion of my withdrawals will be gains rather than cost basis.
    • Healthcare: I'll be getting older and there's tremendous uncertainty around ACA subsidies.
    • Housing: If I ever want/need to move for any reason or if rent control laws change, I'll be forced to start paying market rent.

    If I assume that (1) 15% of my withdrawals are going to taxes due to hypothetical-but-plausible tax hikes, (2) I'm paying market rent and (3) I'm paying the health insurance premiums of a 60-year-old instead of a 33-year-old and without ACA credits, my annual expenses go up to 4.3% of my portfolio. Given current market valuations, that's too high for me to sleep well at night.

    On the other hand, my expenses would rise gradually and the fact that my expenses would be highest relatively late in the game gives my portfolio a lot of time to grow at very low withdrawal rates to meet them. How does one adequately model this complexity and determine whether their portfolio is really sufficient for FIRE?

    submitted by /u/Vtiax18
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    [US] Couple having 2 houses - each own 1 or both own 2 together?

    Posted: 08 Aug 2018 09:18 PM PDT

    on the road to FI, a lot of people own more than 1 house for stable rental income and such.

    Wanting to do that some day, I wonder for a married couple, what are the financial pros & cons for either:

    1) Person 1 owns house A (with mortgage) + Person 2 owns house B (with mortgage)

    2) Both names are on both houses (with mortgage)

    By financial I meant how first-time home buyer, taxes, and mortgage stuff affects expenses related to houses.

    How do you guys handle that? What do people do when they have 2+ houses?

    Thanks!

    submitted by /u/new_name_jackson
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