Financial Independence New to the forum and sharing my accidental FIRE story |
- New to the forum and sharing my accidental FIRE story
- How much cash is too much?
- Any reason to NOT protect as much as possible in tax sheltered accounts?
- Pension Considerations
- The Ultimate Personal Finance Spreadsheet
- Daily FI discussion thread - March 03, 2019
- Macroeconomics and FI
- Recent Grad: Anticipated Positive Net Worth! My path to FIRE
- Good metrics/KPIs for keeping progress
- We have too much cash on hand. Where should we put it?
- Confused about megabackdoor roth, roth conversion and roth ladder interaction.
- Can a 35 y/o retire permanatly on 2.5mm in cash?
- Easily Achieve a 7% (Pseudo) Safe Withdrawal Rate
- FI/RE investing vs mortgage?
| New to the forum and sharing my accidental FIRE story Posted: 03 Mar 2019 09:04 AM PST Hello everyone! As my user ID and header indicate, I achieved FIRE long before I knew it was a thing. I wish I would have discovered the community much earlier so I could have optimized my journey, but consider myself lucky to be in this position even if the journey wasn't perfect. Without bogging this down with too much detail, I'll share how I got here by accident. First, I'll give my overview. I'm currently in my early 50s, became FI about 6 years ago around the age of 47. I've always been starting my own businesses that paid the bills but until recently I never made over $25,000 per year. My most recent business before retiring was as a (self employed) computer engineer, but even my best year doing that was never over $50K. I've always been very frugal, living on a minimum wage type budget no matter how much I was making. I invested the rest (poorly, in hindsight) into either my next business adventure or stocks. As you can tell by my income, not a lot was going into stock in the early years of my investing in the late 90s through Sharebuilder, a few hundred per month at most. I hadn't yet discovered Index funds or ETFs, I got my tips mostly from the Motley Fool Hidden Gems newsletter or my own attempts at stock picking. Don't want to bog this down too much with my personal life, but from 1995 to 2005 I lived in New Orleans. Hurricane Katrina pretty much wiped me out down there and forced me back "home" to start from scratch. My father still lived in the same place I grew up in a rural area of Missouri, so this gave me a soft place to land and get back on my feet. Between having that roof over my head and an old friend letting me set up shop in his unused basement I was able to get the computer business off the ground. I quickly was able to save and grow my stock accounts thanks to my low cost of living at the time and the success of the computer engineering business getting some contracts with people needing specialty systems that correlated with my expertise. A lot of my systems went to movie editors, Tesla computing systems, etc. After a couple of years I had about 80K in my stock account, and I used this to buy my first properties. I was a group of 2 houses and a garage apt on the same section of land. Purchase price was 35k...only the small 700sq. ft. house was close to livable at the time, so I did the minimum to fix it up so I could rent it for $500 a month. Then I set about renovating the larger house for myself and fixing up the garage apt. to use as another rental. I ended spending another 35k in renovations, all funded by my stock account, which left me with very little. Of course, the market had totally crashed during this time, but most of my money was already out before the worst happened. On the plus side, the two rentals were now bringing in $900 a month on top of my computer business, and my own house was completely paid for, so almost everything I made was going back into savings. Within the year I was able to buy another rental on the same block. Same scenario...distressed property I bought for about 25k, fix up for only about 7k, and was able to rent it for 700 per month. I kept repeating this pattern, buying and renovating everything with cash. Living frugally and reinvesting everything into new properties. After getting about 10 properties I realized I was making more in rent than I was from my computer business, so began to dissolve that and concentrate on the real estate end of things. I kept acquiring property running everything myself until a few years ago I hired a property manager to take care of the day to day. Now, I still live frugally on a personal budget of about $800 per month for everything. Of course my house is fully paid for, so I have no rent. And that amount doesn't include any rental related expenses. I arrived at the $800 per month budget by figuring about what I would have left if I lived on minimum wage after rent. I currently have 20 properties that bring in over $10K per month total. My current savings rate is about 90%. I have 2 separate stock accounts. One is leveraged, one is a huge mix of different ETFs. Each gets $2k per month. I also put $2k into my Fundrise account (a real estate investment platform not tied to the stock market) each month. I keep a $10K balance in my savings at the end of every month. This is high, but I never know when a property will need something, and I want to cover anything that might come up immediately so I don't have a trade person waiting to be paid. Everything else goes into a money market fund that I use to fund new RE purchases or as a slush fund if something comes up that isn't covered by my savings account. I also do some private REIT investing in other markets, I started with a $25K investment that I keep rolling over into new solo projects that are getting a 20% return, so that money is growing quickly although I'm not putting any new monthly funds into it. I also use Acorns for a fun little savings account to fund any fun money not in the budget. I have never tapped it yet since I'm able to stay below budget, but nice to know it is there if I get a wild hair. At some point some life event might happen that causes me to tap into stock or lower my savings rate, but for now I'm very comfortable still living extremely frugally and watching my net worth grow $10K per month. By the time I hit my early 70s I'm projected to have a net worth of between $5M - $10M, depending on the market and how much RE I continue to accumulate. So, this goes to show that all this can happen very quickly. I went from flat broke, recovering from a hurricane wiping me out to fully FI in just a few years. There are still things I need to work on...tax can be an issue since I don't have access to the usually shelters most people in the community use. RE income doesn't count as earned income, but it does have the advantage of depreciation and other write offs. Sorry this was so long, but I wanted to give a complete picture without getting into the weeds too much. I'd be happy to answer any specific questions anyone has. I just discovered the FIRE community by accident through some articles on an investing website about a year ago, so I'm sure this community has a lot to teach me! Edit, after a few requests, this is how the $800 budget breaks down. Maybe I didn't make that clear enough. That doesn't include ANY business related expenses. I don't have a mortgage or rent, my house is fully paid for and I self insure. I came to that basic budget based on what someone making minimum wage would have to spend minus housing expenses, which I estimated I could rent for $500. So full time minimum wage would earn about $1300 a month, minus $500 for imaginary rent. That leaves the rest as follows. My Electric - 75 (average over the year) My heating Gas - 75 (average over the year) My Water/trash - 60 (more or less fixed) Cable - 65 (fixed) Phone - 35 (fixed) Food/groceries/ discretionary $250 Cars ins -60 (fixes) Gasoline (car) - 50 Car repair/licenses fees - 100 A few notes...I have a few cars that qualify for collectors insurance, which is practically nothing because they are rarely driven. The ones that don't qualify for that low rate I only keep minimum required by state. That is how I insure them all for such a low monthly rate. I'm a homebody, so I don't rack up a lot of miles and rarely hit the $50 allotted for gas each month. I do set aside another $100 for repairs and licensing fees each month in the budget. I can go years without a major repair, so that piles up for whenever it is needed. I could break down the food budget better...I only spend about $100 or so a month on actual food. I rarely eat out, and even when I do it wouldn't be more than $15, but that is included in there, too. Also non food groceries and clothes. I usually have at least $50 a month left over unless I need to make sort of out of the ordinary purchase. [link] [comments]  |
| Posted: 02 Mar 2019 08:55 PM PST What percent of your net worth is in cash? What rule do you follow for cash? I'm single, employed, have a huge savings rate etc. But I have more cash than I need for 3 months expenses. I'd probably spend 6k at most for 3-6 months unemployment. Plus I'm young enough to move in with parents. Almost all my networth is in equitites (stock) with a tiny bit of bonds. Much of this is in maxed out retirement accounts. So cash is in some ways what I plan to use in the case of a recession to buy more stock. But I'm afraid of all the inflation and taxes on my cash. [link] [comments]  |
| Any reason to NOT protect as much as possible in tax sheltered accounts? Posted: 03 Mar 2019 02:06 PM PST Hi all, I'm currently 24 and debating doing a backdoor Roth to convert $5500 for 2018 and $6000 for 2019 from a brokerage account to a tIRA and then rolling it over. I was about to hit confirm when I realized I should probably ask and see if there's any reason for me to not do that. I max out my 401k each year with ~28k Roth and ~28k pre tax contributions so I already shelter a lot of money, and i contribute another 50k-60k to brokerage accounts. I'm hoping to fire at 32-35 with 2MM+. Is there any reason for me not to shelter as much money as possible considering i'm going to try to fire 25 years before I'm eligible for standard distributions? I think I'll be okay with Roth laddering, but are there any other downsides when looking at contributing as much money as possible to tax sheltered accounts when trying to retire very early? My net worth is currently distributed as: ~100k Roth ~100k Pre-tax ~150k standard brokerage accounts EDIT: I'm above the income limit for a tIRA or that'd likely be my preference. Backdoor is my only option. [link] [comments]  |
| Posted: 03 Mar 2019 11:34 AM PST I worked at a state university for a little over 6 years and I am fully vested in the retirement pension. I'm trying to budget this in my retirement calculations and have a couple of scenarios to consider. The earliest I can draw the life annuity is at age 55. Currently, I'm 34. Here are the payouts at a couple of different ages. What are some considerations about grabbing that money early and investing it when I'm 55 or 60 vs using it as regular income once I get to 65 or 70? What other information is needed for this decision? I don't plan on needing that money for retirement, but it's a nice additional cash flow. [link] [comments]  |
| The Ultimate Personal Finance Spreadsheet Posted: 03 Mar 2019 12:18 PM PST Version 1.3 of the spreadsheet I expanded the tax calcs section to include capital gains/dividends taxes and the medicare surcharge info on both the payroll and investment side. Also updated the tax numbers for 2019 [link] [comments]  |
| Daily FI discussion thread - March 03, 2019 Posted: 03 Mar 2019 12:08 AM PST 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. [link] [comments]  |
| Posted: 03 Mar 2019 11:38 AM PST Basing this question on the assumption that people who are into financial independence are in the vast minority of people, what would be the greatest percentage of people that could be financially independent in a given economy? The money for those who are FI (or even working towards it) has to come from somewhere. I originally worded my question as specific to the US, but I would guess that the actual answer would have to include the world as a whole. [link] [comments]  |
| Recent Grad: Anticipated Positive Net Worth! My path to FIRE Posted: 03 Mar 2019 03:12 PM PST First off, this is a throwaway because this has mostly been a personal goal for me and nobody except for my family knows/knew about my financial situation. I'm really proud of myself and my saving habits, but my family comes from a cultural background where it's really looked down upon to talk about finances, so I haven't really been able to share this with anyone. I don't think it's super important but I don't want this to feel too brag-y. Here's a rough idea of my net worth - the numbers are slightly off because I count taxes as a 'cost' (I enjoy put the bigger salary number that way) and because I wasn't 100% accurate with the interest rates on my loans. That said, I just received my second-to-last paycheck as someone with a negative net worth and I'm so excited to finally start building wealth for myself after April! I couldn't have done it without the inspiration I found here in this community so you guys definitely deserve my thanks for helping me find out that this was even possible. For more context:
Right now it's looking like I'll have a positive net worth as of April 1 2019 (oh the irony) by around $1k-$2k (maybe more, based on my tax return). After that I'll finally be able to truly get on the road to financial independence! Up until now I've basically put 100% of income after personal expenses and taxes towards paying loans off. This has meant I've been putting around 80% of take-home pay towards loans (alternatively: 85% of total pay towards taxes and loans). I know it's not necessarily the best use of money (especially since I haven't been maxing out 401K, etc) but my parents never taught me good financial skills and I've found that having this goal and sticking to it has helped me to further decrease my expenses (by almost 20%!). After this I'll start maxing out my retirement accounts, look into real estate (not sure where yet - but I've heard the first property has lots of financial perks), and hopefully get back into active stock trading. Thank y'all for supporting me in this journey and I look forward to checking back on the day that I manage to (hopefully) hit that $1M net worth figure!! If anyone has any advice I'd of course be open to it. Also wishing everyone the best on their personal journeys. [link] [comments]  |
| Good metrics/KPIs for keeping progress Posted: 02 Mar 2019 07:51 PM PST Hi all, What do you measure when keeping track of progress towards FI? I think most people focus on simple net worth (assets - liabilities) but net worth alone doesn't paint the whole picture. For example it doesn't take into account the cost of selling a home or the taxes you will need to pay when you unload it or the fact that you can't access retirement accounts until advanced age. Of course no one number will ever capture everything but a reasonable set may paint a broader pic. [link] [comments]  |
| We have too much cash on hand. Where should we put it? Posted: 03 Mar 2019 01:06 PM PST We have more cash than we need, well beyond an emergency fund or 6 months' worth of expenses. Right now it's sitting in a money market account gaining very little interest (my husband is a very conservative investor but has finally given me the go-ahead to move $100k somewhere else). Any recommendations? [link] [comments]  |
| Confused about megabackdoor roth, roth conversion and roth ladder interaction. Posted: 03 Mar 2019 11:14 AM PST I'm confused by this. In the megabackdoor, I contribute both pre-tax and after-tax money to my 401(k). I then do an in-service transfer to get the pre-tax money into a traditional IRA and the after-tax into my Roth. Okay, fine. In a Roth ladder, I make lots of contributions to a traditional IRA and then wait for my income to be 0 before rolling it into a Roth IRA to minimize taxes. But in a regular backdoor Roth, I essentially just make (in my case non-deductible, fully after tax) payments into my traditional IRA and then roll that money over to my Roth IRA, right? (Since I have a high salary so non-deductible income). But if I want to a Roth ladder, I want to wait for my income to be very low before converting my pre-ta traditional IRA into a Roth, as I have to pay taxes on it otherwise right? So my question is, I suppose, doesn't megabackdoor Roth kinda screw with the normal contributing to a traditional IRA and rolling over strategy? Because a megabackdoor Roth puts pre-tax money in my traditional IRA. How do I deal with the normal (after tax) rollover in this case? Can I just rollover the after-tax portion in my traditional IRA? tl,dr: I make 200k+. I will leave the US in the future and my income will be 0. How does my flowchart look. [link] [comments]  |
| Can a 35 y/o retire permanatly on 2.5mm in cash? Posted: 03 Mar 2019 03:02 PM PST I don't care about throwaway accounts so here goes. 35 y/o married with no kids yet. Started a business at age 14. Finally got an offer to sell that I'm pretty sure I won't beat for a few more years and am looking at taking it. Worried a downturn in the next couple years will negate any growth in value I keep chugging towards. Also want to cash out at 15% cap gains before they go back up. Will end up with 2.5 million in cash after taxes. I have little savings to speak of since its all been going back into our business or my airplane. Owe 3.5 more years on my home mortgage, $1800 / month. Have 2 commercial buildings that are worth $650k together and owe $367k between the two. The mortgages total $3300 / month and they bring in $6300 NNN per month. Airplane is owned outright and only costs what I burn in fuel plus $450 / month fixed costs. What would you do with all this and what would it produce? I'll start. Meeting with my banker this week to see if I can take 1 million and leverage it to 5 million to start my own personal commercial real estate portfolio. Need to refine my spreadsheet to see exactly how this plays out but my gut says it's one of my best options. [link] [comments]  |
| Easily Achieve a 7% (Pseudo) Safe Withdrawal Rate Posted: 03 Mar 2019 12:16 PM PST It seems that with real estate you can easily get an indefinite ~7% return on your cash with little threat to your principal. Upon retiring, shift your cash or equities into an income-producing rental and live off the rents. I used the following assumptions: Rental Income = 1% of property value each month (the "1% rule") Property Taxes = 2% of property value annually Insurance = 0.75% of property value annually Maintenance = 1% of property value annually (the other "1% rule") Property Management = 10% of rental income These assumptions yield a rental income (pseudo Safe-Withdrawal Rate) of just over 7%. For example, you FI/RE with $400k. You buy a $400k quadplex that yields $4,000 in rent each month (easy enough to find), or $48k annually. Your property taxes are $4k annually (quite high), insurance is $3k annually (also high), and maintenance is $4k annually. You don't want to "be a landlord," so you pay a property manager $4.8k annually to manage the property. You still end up with $28,200 net per year, or 7.05% return on your money. Even if my conservative assumptions are somehow wildly wrong, increase them all to 150% of what I set them at, and you will find that you still exceed a 4% SWR. And of course, your principal is as secure as the market in which you have invested. In many markets, it will appreciate. This all seems too good or obvious to be true, so what am I missing? Which assumptions are incorrect; what potential pitfalls did I fail to identify? Obviously you can have catastrophic real estate market collapses, such as in 2008, but the same thing can happen to equity markets so I'm not particularly compelled by that argument. Edit: forgetting to include vacancy was dumb, I got too excited! If you add a 1/12 vacancy rate for every single unit you own, the return drops to just over 6%. [link] [comments]  |
| Posted: 03 Mar 2019 06:58 AM PST Just seeking opinions. I have two house, one in particular has only ~150k left on its mortgage. I'm debating putting normal investments money (~1500 a month) towards paying it off. But the "investor" in me screams the interest doesn't compound on debt removal! But then I've got a permanent place to live. Without realizing it we're within 5-10 years FIRE except the mortgage payments. So if you're that close to FIRE do you pay off your mortgage or carry it as an expense? I'm torn...to be honest. [link] [comments]  |
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