Financial Independence Daily FI discussion thread - July 31, 2020 |
- Daily FI discussion thread - July 31, 2020
- First generation immigrant to the US. 20 years ago I lived in a shelter, today I just hit 100k NW!
- Nomad FIRE
- The beauty of the solo 401(k), and why everyone should consider it over taxable accounts for investing 1099/side hustle income
- Golden visa investment for retirement?
- I was bored so I made a Lump sum vs DCA calculator
- Weekly FI Frugal Friday thread - July 31, 2020
| Daily FI discussion thread - July 31, 2020 Posted: 31 Jul 2020 01:08 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. [link] [comments]  |
| First generation immigrant to the US. 20 years ago I lived in a shelter, today I just hit 100k NW! Posted: 31 Jul 2020 11:32 AM PDT I've been browsing this forum for a few years, and I finally have something to add to the conversation. I've seen a few posts from US immigrants which prompted me to post my story as well. TLDR at bottom. Childhood: I come from a single mother household, my mother was middle class/upper middle class in a Latin American country. As in many Latin American countries, violence was always a big part of life there. While we had a comfortable life there, it's hard to escape the violence. When I was about 7-8 years old, a close family member was murdered for seemingly no reason. Their body sat on the street for many hours with all their jewelry still on their body. This shook my mom and although I was too young to really understand, this was the beginning of my FIRE journey. A few months later, my mom decided to book us a one way flight to the US as we had visited before in the past and she (like most from our country) admired everything the US stood for. We sold most of our belongings and never looked back. It was at this point that a series of lucky breaks occurred that shaped who I am today and why I'm seeking FIRE. I often think about how different my life would be today had we never come to the US. Over the next few months, my mother realized her pension would not be enough to keep up with the US cost of living. She left her comfortable white collar job behind and decided to start a house cleaning business. Although she was successful over the years, she never expanded the business and was the only cleaner. You can imagine the physical toll house cleaning would take on someone in their 50s-60s. Throughout my childhood, I would often help my mother clean houses/offices on the weekends. I never earned any additional cash from this, but from a very young age I started to understand the concept of money and that I wanted it. My mother ultimately married a US citizen which is how we gained our citizenship. Living in a DV shelter: Not long after my mom married, the relationship turned abusive, I'll skip the details but at one point we were forced to live in a domestic violence shelter. I was around 10 when we first moved to it. This is when I started to itch for something that was eventually scratched by seeking FIRE. Our move to the shelter was a really difficult one. Not only were we foreigners to the US we were forced to live in close quarters with other people who didn't share the same ideals we had. Whether it was a good thing or not, I began starting to obsess over money at an early age. After living in the shelter for over a year, my mom was able to save enough money to rent an apartment and begin her life again. Her savings were completely depleted from the abusive relationship. Beginning of FIRE: My middle school had this program that was designed to help kids earn money so they could go on field trips. They would give you a box with 40 bars of candy/chocolate, and you'd sell them for $1 a piece. You'd then give the school $20 back and you could keep the $20. While most kids would sell a couple boxes to help pay for trips, I started selling these in large quantities. While I don't remember exactly how many I sold over those 2 years, I probably sold hundreds of boxes. I'd go to a Walmart parking lot and would spend hours selling candy. On some weekend days, I'd spend 4-5 hours selling candy. My mom would sometimes accompany me, sometimes she would drop me off and go clean while I also "worked" - I loved feeling productive. I look at those days as the start of my FIRE journey, even though I had no idea what FIRE was. I knew I wanted money, even though I wasn't exactly sure what I wanted it for. Over the next couple of years I continued to seek out random jobs until I was old enough to have my first real job. The job gave me the opportunity to earn tips, which I believe from an early age continued to fuel my hunger to do good things so I could earn more money. Being polite and working hard meant I earned more tips. Gold buying job: Through blind luck, I was put in contact with the owner of a company that ran and operated those "cash 4 gold" stores that popped up everywhere during the last financial crisis. It was an easy job with lots of down time that was absolutely perfect for someone in school. The job was fairly unorganized but from about 18-25, I would travel across the US doing these gold shows in hotel lobbies or sometimes setting up permanent gold stores by hiring and training employees and setting up store fronts and licenses. The money I earned was really sporadic, but it was always very high paying. I primarily worked Friday-Sundays except for the summers where I could work more to earn more money. When times were good I'd earn as much as $500 per day, and when things were slow I'd bottom out at around $150 per day. I made a lot of money throughout those years sometimes earning as much as $30-40k (part time) per year. I was good at the job and my boss trusted me. We had several other employees over the years, and I'm pretty sure they either all stole from him or were wildly incompetent. Making mistakes in that job meant you could buy a piece of jewelry for thousands that was worth $0. Stealing from that job also meant the boss could be out an entire weekend's loot of $50,000-$100,000. This job allowed me to save up, pay for expenses, and help around the house. I also purchased cars and trips and other things that I somewhat regret now, but they were part of growing up and having the things I wanted. College: I lived in a state that offered free in state tuition if you had a high enough GPA in high school. While many of my high school friends didn't seem to value that, I knew that it was the secret to not coming out of school crippled with debt. Although I couldn't save a lot of the money I earned, I left college with $0 in debt which was important to me. Having to schedule my college semesters to always have Fridays off was difficult and often led me away from courses/career paths I wanted, but I couldn't afford to not work Fridays. To this day, I often think about what my life would've been like had I been able to take that intro engineering class that met on Fridays freshman year. I started college pursuing an accounting degree. I hated it, but that drive to learn more about business and money made me stick to it for a few years. Finally, junior year I had enough and dropped the accounting classes. I found a passion for one my finance courses and ended up loving it and graduating with a BS in finance. Towards the end of senior year I decided to take the LSAT and give a go at going to law school. Although my grades were good, my LSAT score was not phenomenal so my options were limited. Law school: I was given the choice of going to a good private law school ($$$) or an average public law school. I often wonder how different my career would be today had I gone to the pricier law school. Having that natural desire to help immigrants, I took immigration classes and ultimately joined my law school's immigration clinic and "majored" in immigration law. Summer going into my last year of law school I interned at an immigration law firm and realized I hated immigration law. I hated how unethical immigration law seemed to me and how none of it was based on law, but based on how pretty of a picture you could paint about your client and why they should be able to stay in this country. I hated that the law firm's income was tied to how many clients they had and I hated having to "lie" on court filings to make our clients' asylum cases better. I was at a crossroads heading into my final year of law school. It was too late to try to really focus my speciality towards anything else so I toughed it out and finished with the specialization in immigration even though I wanted to do anything but that. I decided to lean on my undergrad degree in finance and try to leverage the skills I learned in law school to work for a Bank/financial institution. I wasn't really sure what that meant but I wanted to find out. First job: After graduation, I now had $79,000 in debt and no job prospects. I ended up applying to thousands (I mean thousands) of jobs throughout the country at banks and other financial companies in hopes of finding something that would allow me to rise the ranks. My first job offer was a job as a bank teller making $12 an hour. It was hard for me to accept that given the fact that my gold job part time would have paid a higher salary than being a bank teller full time. I stuck it out another month or so and ended up getting a job at a bank doing entry level loan work making $38,000. My manager, who I had a great relationship with, didn't even have a college degree, and here I was with a JD doing something that wasn't legal related at all. Although it was silly to expect that doors would open because of my law degree (especially given I wasn't going into a traditional legal job) it was a rude awakening that working hard in school did not mean much for the real world. A lot of my law school friends also had a hard time finding a job they loved and paid well, but it was a tough pill to swallow as they all started getting jobs at firms making money while I was making what I considered to be low income. Moving up: While my job wasn't related to legal work at all, I was good at it and my manager had plans for me to be promoted at my 1 year mark. A promotion in that department would have likely meant making $40-45k. However, I was most concerned that it, again, had nothing to do with law and didn't allow me to leverage that very expensive education and the skills I acquired in school. I decided to apply to work at a different department at the bank. This job was closer to using my law degree, but it still wasn't what I was searching for. However, the job was a raise and paid $51,000. I looked around and my close friends were probably making that as their first job and many had already moved up as well. I tried not to compare myself to others as hard as that was but it felt like I had wasted my first year out of school. Another lucky break came around a year later when a manager I knew in a different department reached out to me to work for them. This job paid $64,000. The job was in data privacy compliance - a lucky break given how how the industry has developed over the past few years. Working in data privacy compliance: By 2018, I started to work in our bank's data privacy department. The entire industry is very young and growing rapidly which means I picked a great time to hop on board. Even my manager only had 2-3 years experience in the field. My job breaks down into making sure my bank is aware of data privacy laws around the world and are complaint with them. Things like drafting privacy notices, working with IT to set up safe systems, managing incidents, and generally keeping our company's name out of regulators' minds. I really like the work as it leverages a lot of the skills I learned in school. Although I felt this was the field I wanted to be in, I didn't think I would be able to add the kind of value I wanted to add (and be compensated for) at that company so I updated my resume and started looking for jobs throughout the US once again. The interview process was nerve wracking at first, but after going on many interviews, I started to learn what employers wanted to hear, and got really good at them. I think apart from actual job experience, being a good interviewer is the most important skill someone can develop. As happy as you are in your job, I believe you should go on a few interviews a year to stay fresh, be aware of what employers want, and make sure you're fairly compensated. After a few months of applying to jobs I landed a job in a slightly higher COL that paid $100,000. I went to my boss to put in my 2 weeks. To my surprise, she discussed with me future plans for the department and that she wanted me to be a part of them. After some back and forth I agreed to stay on if she gave me a raise. I was willing to stay had she offered $75k-80k, but being so nervous during the conversation I didn't say much. They threw out the number $85k first and told me they'd give me $90k in a few months at the regularly scheduled raise period. I jumped on that immediately but didn't expect the $90k (which surprisingly came a few months later). In around 3 years at the bank I went from making $38k to 90k where I currently sit. We receive a lot of other benefits such as bonuses, stocks, etc, so I consider my salary to be much closer to $110-120k. I live in an average cost of living city. I love my job and hope to continue doing it for many years. I work no more than 40 hours a week, have a great relationship with my boss, and really see the value I add to the department and the company. I expect my salary to continue to rise, and I hope to stay in this field as it is currently lucrative and hot. I'm willing to look around if I feel my salary stagnates. I was recently offered a job that paid 105k and after lots of thought, decided not to take it believing my current job had higher potential for growth. Let's hope that pans out to be the right decision. About 3 months ago, I made my final student loan payment. I paid off about 90k total after interest. My savings are low today because I focused so heavily getting that monkey off my back. Personal life: I got married about a year ago. We had a true FIRE wedding and spent about $500 total. Our honeymoon was a different story... My spouse and I share much of the FIRE mindset, and she makes about the same as I do. Having recently combined our incomes, I expect that our NW calculation will rise significantly over the next few years especially given that I'll reallocate the 3-4K per month that was going to my loans. Neither of us wants kids any time soon (we're in our late 20s). We spend a lot on trips, food and drink, and we just recently purchased a nice home that depleted much of our savings. I try very hard to not obsess over money, but I haven't forgotten the fire that drove me to focus on raising my income since I sold that first candy bar. Numbers: 15k cash (depleted due to recent home purchase) 50k in home equity 40k in retirement savings (all index funds) 2 cars valued: $30k Our only debt is a 10k car note and our mortgage. 105k total-ish combined net worth Current combined salary: 180k before bonuses Individual salary history: 25 yo: 38k 26 yo: 51k 27 yo: 64k 28 yo: 85k 29 yo: 90k TLDR: I was incredibly lucky to be born outside the US but end up here at an early age. I worked hard through school but had many, many lucky breaks that allowed me to learn about and pursue FIRE. Went to law school but don't really work a traditional legal job. Recently paid my student loans, and now shifting focus on amassing my FIRE fuel. [link] [comments]  |
| Posted: 31 Jul 2020 06:45 AM PDT Hi, I've been lurking here for years now, but it's time to add my story and some advice. Hopefully it will help someone out. My FIRE strategy is primarily focused on saving money by letting my employer pay for my living expenses. I am a 35-year-old nomad, current net worth around $200k, but it's been increasing at around $50k per year in the past 2 years, with the same forecasted increase as long as I keep this job and lifestyle. I had fallen in love with NYC on a college spring break trip, so I moved to Manhattan after college and lived there for 12 years, which gave me a slow start to FIRE in a HCOL location. But I did manage to save money overall, despite never having a salary of more than $60k/year. I saved quite a bit by living for 7 years in an 85-square-foot microapartment. I now take overseas assignments as a government contractor and get housing + per diem payments (as listed on state.gov) on top of my regular pay. Since I don't have a permanent home now, I can easily afford to live off the per diem and save my entire salary. I usually work a total of 9-10 months per year. When I'm back in the US, I spend most of my time city-hopping, visiting long-time friends who are generally happy to host me for a few nights. A security clearance was a requirement for my job, which took me 8 months, so the process wasn't simple, but the good news is that there are more vacancies than qualified workers, so I can be fairly confident about taking time off and getting another assignment when I'm ready to work again. If that doesn't work out, I'm confident about having enough for CoastFIRE right now. I've told friends that this could be the last full-time job that I ever have. After this, I'd just work part time and spend the rest of my time on my hobbies. I'm a minimalist who is fine with living in developing countries, which helps to cut down on expenses. Otherwise, I like learning languages as a hobby, for those of you who know the CEFR standards, right now I'm at B2 Spanish, B2 German, A2 French, and A2 Russian. I have CELTA certification to teach English, so could see myself living in developing speaking countries, teaching English part time and learning languages part time. So advice that could benefit someone: There's plenty of US government contractor work that's well-paid when you consider the perks, and much less stressful than working at a corporate job where the company is trying to milk the most out of you. To me, the slower pace of work was alone worth the switch to this line of work. For many Americans, there's a myth out there that the US provides the best health care in the world. For very specialized cases, that might be true...maybe the best doctors for a rare disease are located in the US. But otherwise, I've become a huge fan of medical tourism...the same quality at huge discounts. In developing countries, I stick with JCI-accredited hospitals. As someone with plenty of free time on my hands, I've often wondered whether I'll get bored after FIRE. This message board has shown me that I'm not alone in this struggle. But I think language learning is going to be one of the a long-term answers for me...it's more affordable than ever now, thanks to online tutoring. There are also websites that let you do language exchanges, if you don't want to pay. And if you can move abroad, it could be a ticket to more affordable COL destinations. [link] [comments]  |
| Posted: 31 Jul 2020 10:11 AM PDT tl;dr: if you're capable of making a few thousand in a side hustle/as a 1099 employee per year, this is probably more profitable than putting your money in a taxable account. Intro: I'm a W2 employee with a 401(k). I max out my 401(k) with my W2 contributions, but I don't have access to a mega backdoor Roth (in-service withdrawals/conversions). However, I also have a side hustle (I do freelance Excel work), and thus as a sole proprietorship, I have the option to open a solo 401(k) with mega backdoor Roth functionality. I'd like to show you the case for exploring this route by comparing it to investing my 1099 income into a taxable account vs the employer and mega backdoor Roth sides of the solo 401(k). Fees and Legalese: I'm not a lawyer nor an accountant. I do not recommend a DIY approach for creating a solo 401(k) with mega backdoor Roth functionality. If you do not follow all of the rules and regulations required in the setup and maintenance of a 401(k) you can get in serious trouble. If you don't want mega backdoor Roth functionality, I've heard good things about Fidelity as a solo 401(k) provider. If you do want mega backdoor Roth functionality, I recommend contacting a company that specializes in them. I do not currently use either of these companies nor am I affiliated, but I've seen good things written about discountsolo401k and mysolo401k. Another note is you can only contribute your business income to your solo 401(k). I cannot take my W2 money and invest it into my solo 401(k). If you're reading this and thinking "but I'm not a sole proprietor nor other types of business owner," know that a lot of things count. Babysitting, tutoring, freelance consulting, etc. You'll pay quarterly taxes on your earnings and pay self-employment tax, and then ta-da, you're a sole proprietorship and this is an option for you. It is legal to have two 401(k)s, and in fact, each 401(k) held by a separate entity (in my case, my sole proprietorship and my W2 employer are separate entities) have their own separate $57K limits. Addition/subtraction in the math might seem +/-$1 off due to using decimals in my calculations. Math Assumptions: I'm using Excel for my calculations, so the references to FV are the Future Value calculation which asks for the rate, number of periods, payment per period, and present value. I will be investing for 30 years, at which point I will retire and take everything out. My current income tax rate is 22%, and self-employment tax is 15.3%. In retirement, I assume my income tax rate will be 10%, and the long-term capital gains tax rate will be 15% for taxable accounts (the 2020 rate for income between $40,001 and $441,450). I assume growth will be 7% per year. The fees I will use are $425 setup and $125/yr maintenance (standard for the companies aforementioned). These fees will be paid from W2 money that otherwise would go in a taxable account, so I will count them in the taxable path as an opportunity cost, as if I instead invested the solo 401(k) fees each year. I'll invest my money at the end of the year, and I make $1000/mo in my side hustle, or $12,000/yr. The Meat (Solo 401(k) Path): My employer-side contribution can be calculated as 20% of net self-employment earnings (business profit - 1/2 SE tax). (12000-12000.05*.153*)*.2 = $2216 employer pre-tax contribution. Maximum employee after-tax contributions (mega backdoor Roth) = lessor of ($55K - employer contributions) and (net self-employment earnings - employer contributions * 2). The latter gives me (12000-12000*.05*.153) - 2216*2 = $7475 to shove into the mega backdoor Roth. My employer contribution grows to -FV(.07,30,0,2216) = $16,871, which I then take out and pay income tax on, leaving me with 16871*.9 = $15,184. At the same time, my Roth contribution has been growing. I take out -FV(.07,30,0,7475) = $56,904 tax-free, leaving me with a total of 15184+56904 = $72,089. We could take this one step further and note that I only was able to put $9691 into my solo 401(k), leaving me with $2309 in business income. Tax it and have 2309-2309*(.153+.22) = $1447 left to put into a taxable brokerage account, which grows to -FV(.07,30,0,1447) = $11,016. I keep what's leftover after capital gains tax, or 11016*.85 = $9364, bringing my total to 15184+56904+9364 = $81,453. The Meat (Taxable Path): But say I invested all my 1099 income into a taxable brokerage account instead. My business income of $12,000 amounted to 12000*(.22+.153) = $4476 in taxes, so I invested $7524. The future value is -FV(.07,30,0,7524) = $57,274. Also, since I didn't pay the fees of the solo 401(k), I invested those too. That's $425 up-front and $125/yr for 30 years. -FV(.07,30,125,425+125) = $15,994. Add them up for a grand total of $73,268. 30 years have passed and I'm ready to withdraw it all with a capital gains tax of 15% leaving me with 73268*.85 = $62,278. Conclusion: $5,000 in year 1 is about the breakeven point if you only invest for the first year, and otherwise never invest 1099 income into the solo 401(k) again and keep paying the fees for 30 years (assuming all of my assumptions, and assuming my math is correct). Of course, this isn't to suggest you shouldn't utilize this option if you can't make $5,000 in your first year. If you can make a couple thousand each year, you'd likely profit more from this option. The solo 401(k) can be profitable in the long term for you despite the fees with a variety of income levels across a variety of years. The more profit you make, the more you can fill the employer-side of the solo 401(k), which provides great tax savings. The SEP IRA would be another good option for people to explore in my situation (think of it like the solo 401(k) but easier/cheaper and with only the employer contribution part). In all, I rarely see this option explored but I think it could be useful for myself and others. If you find any errors or have any comments/questions, I invite corrections/discussion :) Additional reading: [link] [comments]  |
| Golden visa investment for retirement? Posted: 30 Jul 2020 09:21 PM PDT Hi All. My spouse and I are considering getting an investor's visa from Portugal. The cash layout for the investment would be 350k EUR (~420k USD right now) plus about another 60k in fees, etc. In theory, the investment will yield 3% per year over five years, nothing for a year or two, and at the end we can apply for citizenship. I think retiring in southern Europe sounds great, but do I really need a citizenship or permanent residence for that? Is it worth is as a back up plan should things go south in the US? Is it possible to just live in Europe and buy an exUS health insurance plan? For background, I'm 43. My spouse is 35. Our current NW is ~$1.6M and we have a plan to retire in about 10 years with a little over $3M, which would get knocked down to ~$2.5M if this investment payed out and paid back nothing, though the 3% yield and a 100% buyback once we get our citizenship is guaranteed. We would plan to live in Portugal or elsewhere in the EU for 10-20 years after retirement, at least until medicare kicks in. Healthcare in the US would eat up a lot of our budget and limit where we could live. I've already had some pretty major health issues so affordable healthcare is pretty important to us, but I'm not sure it's worth the opportunity cost and fees. Just editing to add responses to common replies: We are still working and about 10 years from retirement, so moving there for a few months/years to see if we like it isn't going to happen. The visa would lead to citizenship, so even if we hate Portugal we'd have all the other EU countries to choose from. And sure, maybe expat life isn't for us, but things like stores closing early aren't going to be a huge problem if we're retired. Other cheaper visa types would be fine if were were already retired and actually looking to move to Portugal, but in theory we would only use the country to get into the EU. All other visa programs that lead to citizenship (or not) would force us to live in Portugal (or whatever other country) for five years. The golden visa basically skips the five year residence requirement and qualifies you for citizenship spending an average of seven days a year in the country. So four vacations in Portugal and we can be citizens. I also like the idea of having Portuguese citizenship as a backup plan if things get worse in the US, either politically or economically. I understand that things could happen in the EU as well, but my thinking is that two citizenships are better than one in this regard. [link] [comments]  |
| I was bored so I made a Lump sum vs DCA calculator Posted: 31 Jul 2020 04:03 PM PDT It's very rudimentary - the calculations are based on VTSAX, but you're welcome to download and improve it if you'd like. I was curious what maxing a 401(k) would look like in this environment, so I made it. https://docs.google.com/spreadsheets/d/1x8QQGHvj5LwCkec01xfEVO2H7m1iLJk_89pgEYDCQAo/edit?usp=sharing [link] [comments]  |
| Weekly FI Frugal Friday thread - July 31, 2020 Posted: 31 Jul 2020 01:08 AM PDT Please use this thread to discuss how amazingly cheap you are. How do you keep your costs low? How do become frugal without taking it to the extremes of frupidity? What costs have you realized could be cut from your life without pain? Use this weekly post to discuss Frugality in general. While the Rules for posting questions on the basics of personal finance/investing topics are more relaxed here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! 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]  |
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