Financial Independence Daily FI discussion thread - Thursday, July 08, 2021 |
- Daily FI discussion thread - Thursday, July 08, 2021
- -93k in debt to worthless, a seven year journey through what I once thought was inescapable debt
- My journey so far - 50k net wealth at age 27
- 200k NW at 35
- People on Fire, how much of your net worth is used for discretionary spending...vacations, booze,. etc?
- Six Months of Direct Indexing
- My Fire Journey so Far (24M) 65k NW - 55k Income
- HCOL versus LCOL
- Balancing F.I.R.E. with Enjoying Life with Kids Now
- Real estate syndications as quasi hybrid fixed income/growth component of portfolio
| Daily FI discussion thread - Thursday, July 08, 2021 Posted: 08 Jul 2021 02:02 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]  |
| -93k in debt to worthless, a seven year journey through what I once thought was inescapable debt Posted: 08 Jul 2021 09:31 AM PDT TLDR Terrible first generation college student from lower class family digs himself into a lot of debt. Eventually reaches worthlessness through a combination of luck and market returns. Received no gifts nor inheritances. Hello Everyone!Last month I hit my first major FIRE milestone, becoming worthless! For years I was in denial, mildly depressed, and anxious about the reality of my financial outlook, so my hope is that other prospective/current/recent college grads will read this post give them hope, or at least a post they can relate too. Most of these numbers are estimations, I only started using Personal Capital in 2018. Also, all numbers are as of the end of the year. Financial UpbringingIn short, my parents always had (and still do) live paycheck to paycheck. I grew up in a poor area in the middle of nowhere USA, where living on the land debt free + social security is more than enough to retire on. I knew early on I didn't want a blue collar life, but as a high schooler I cut my teeth on construction sites and it taught me a good work ethic. I always worked hard, but the money always had a place to go to. 2013-17 || NW of $-75kIncome = ~$18k, two part time jobsInvestments=$0 Cash=(paycheck to paycheck) Debt=(75k) Four years of school done, and I still didn't graduate. When I was a senior in high school, I googled "best paying degrees". Computer Engineer was near the top, so I went to school a day's drive away, figured the high private school price tag was normal and just started taking out loans. I worked 2 jobs and had my own place. Within a short time, my house became a frat house, and we threw parties with hundreds of people every weekend. This of course let to me never working on schoolwork, and sure enough I couldn't pass my classes. Starting in 2016 I was losing sleep over my college debt. Every semester I was 8k or more in the hole, and as my grades worsened so did the debt. I became frantic at times, and would lose my temper easily when talking about financial things. When asked if my family was paying for my schooling I would abruptly leave the conversation. I became jealous and bitter that others didn't have to work 2 jobs, that others could afford to live on campus, and that they could take weekend trips. I lost lots of friends in this time period, as the parties ended and reality set in for me. One great thing that happened in this time period, is that I met my future wife. She helped me get on the path to FI possibly more than my degree did, and I'm eternally thankful for her. 2018 || NW of $-93kIncome = ~$55k + 3% 401(k), first full time jobInvestments=$2k Cash=(paycheck to paycheck) Debt=(95k) It took me 5 years and an extra summer semester, but I settled for a CompSci degree after failing out of CompEng. And guess what, I became a computer engineer anyway. HAH! Take that Dr. Brocious! I landed an internship off the recommendation of my wife, and started working my first job for 55k. I knew this industry is lucrative and exclusive, and its unlikely I ever would have later in my career if not for the internship my wife helped me get. It was in this year that I started focusing on finances. I had just found this subreddit, so when 2000 toyota avalon died I went for an efficient car I thought could last a long time. Well, I had the right idea, but in execution what I ended up with was an 11k loan @ 11% for a car I did not enjoy driving. First loan, no credit, 11% was actually considerably lower than my peers, so I thought that was great. It was not. I refinanced my 7.7% student loans down to 4.8% in this year as well. 2019 || NW of $-70kIncome = ~$85k + 8% 401(k) (gradual vesting plan)Investments=$11k Cash=$5k Debt=(86k) Didn't last long at my first job as I quickly found another paying 30k more that I enjoyed much more. Company loyalty means very little to me. This also meant moving to a HCOL area, so while 85k didn't actually mean i kept much more money, I had more opportunities. At this point, I was throwing every available dollar into my loans. I refinanced my 4.8% student loans down to 3.8% this year as well. 2020 || NW of $-25kIncome = ~$115k + 20% 401(k)Investments=$35k Cash=$12k Debt=($72k) Didn't last long at my second job either. Turns out living in a HCOL gives you lots of options, my 3rd job hop landed me at a small company with an owner who is intending to FIRE himself, and has a pay structure to allow his employees to follow suit. With this pay bump I've maxed out my earning potential for my current experience in this industry, however. In March 2020, the market took a huge dip, as you all know. However the outlook was always that it was a temporary thing, so I stopped contributing additional money towards loans and invested all my available cash into VTSAX in early April. I also started maxing out retirement accounts and putting that into VTSAX as well. This greatly accelerated my path to worthlessness. Another thing that helped is that my car was totaled in an accident where the other person was at fault. I was able to rid myself of the poor loan and car, and buy a Nissan Sentra for 4000 dollars and low-ish miles. Given my income, you might think my FI progress was slow for this year. You'd be right, as I got married early 2020, and the wedding + honeymoon cost me about 15k all told. We did a destination wedding to save money, but even with that it was still a hit to that years progress. Would have been nice to invest that money during the covid crash, but frankly I would have spent more money I had too, February 2020 was the best month of my life. I also refinanced my student loans again, from 3.8% down to 2.8%. I think I am done messing with them now. Today || NW of $10kIncome = ~$115k + 20% 401(k)Investments=$50k Cash=$23k Debt=($64k) Numbers get a little weird an inaccurate here, since I bought a new construction house that i've only paid half the downpayment on so far (its not finished building yet so we have not closed), so most of the money is being saved in cash for that. I've also combined finances with my wife, so this is my last celebrate an 'individual' FI goal, as all FI goals hereafter will be mutual! At this point, I am no longer in the red, however I still carry my student debt. As stated before though my debt is all under 3% now, so i'm content to let that ride and continue investing into the market for now. For me personally, I have my sights set on FI more than RE. One of my biggest goals is to travel the world, and I'd rather do it when i'm young with high earning potential, than when I'm old and have to worry about pinching pennies. Everyones different, thats just me. Cheers to FI! [link] [comments]  |
| My journey so far - 50k net wealth at age 27 Posted: 07 Jul 2021 09:00 PM PDT I'm posting mostly because I see a lot of really high income earners on here most of the time, here and the other FIRE subreddits seem to attract a lot of those folks - it makes sense, it's easier to save money when you make more. I've graduated with a degree in economics and made mostly normal salaries since graduating. Here's a run down of my net wealth and income over the last two years. I didn't start really being interested in FIRE until December of 2019 and I didn't start keeping really good track of my spending and investments until about June of 2020. Second half of 2019: June: -4k in net wealth, Income: 0 (just graduated) - got a job in early July December: 7k in net wealth, Income: $52,000 Got fired from my job for a simple error (investment banks are rough, don't work there). 2020: January: 6k in net wealth, Income: 0 - got a job at another bank, a consumer bank at the end of January February: 6k in net wealth, Income: 35k June (where I actually started keeping track with YNAB): 17.3k in net wealth, Income: 35k September: net wealth: 21.1k, Income 48K per year - transitioned jobs into a financial analyst role December: net wealth: 29.4k 2021: January: net wealth: 31.4k June: net wealth: 55.4k Current net wealth breakdown: Cash $14k - I'm planning to buy a car soon, hence why the large allocation to cash. Investments $40k (90% equities, 9% bonds, 1% cryptocurrency). my net wealth exploded when i transitioned jobs mostly because I was able to move back home for a few months and I've been saving roughly 60% of my income. The stimulus checks helped a lot though as I invested all of it. Unfortunately, living at home is going to be ending as my company is moving soon and I will be moving with them. It's been nice to live rent free for a few months and also help take care of my aging parents. I doubt my net wealth of $50k is going to last too long given my car purchase. Seriously, cars are so expensive right now, ugh. But, it's nice to feel like I'm on track at a young age. It brings security and given how much I hate corporate America, I'll be excited to leave it in like... 10-20 years. haha. Hopefully sooner. But really, what I've learned about FIRE this past year, is your income helps tremendously, but lowering expenses also helps a ton too. I'll update in a few months when I get settled into my new place. [link] [comments]  |
| Posted: 08 Jul 2021 03:55 AM PDT My 35 yo birthday is coming up and I just hit 200k net worth. At this rate, I will likely FI in less than 8 years. I started FI late and literally started investing less than a year ago. Before that I was buying branded clothes and spending on frivolous stuff. But once I was in the FI zone, I went all in reading every resource I could find. One of the best concepts I learn was automating this journey. My monthly investments are automatic, goes into index fund right after I get my income. All fixed costs like mortgage is also deducted at the same time. The remainder is free for me to spend as I wish. This makes things easy since as long as there's money in the bank I can spend it. Breakdown is
EDIT: I forgot about my emergency fund which brings my net worth to about 220k. In the last year, I've also changed my job to a six figure job. I don't do overtime and it's fully remote, offering great work life balance. Additionally, I have a side gig that pays about 1k per month. At the same time, I've reduced my expenses, spending approximately less than 40% of my income each month which includes my mortgage. This is a pretty straightforward journey and it's as simple as keep trying to increase income and reduce expenses. The rest will follow. One thing that really helped was that I stop caring about what others think, ie keeping up with the joneses. I used to think I need the latest gadgets or clothing or cars but all these just seem unnecessary to me now. TLDR
If you want advice, I can offer my point of view. Reading all the posts in this sub literally helped pave my way. EDIT: gonna add these info since they were asked a few times
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| Posted: 08 Jul 2021 01:10 PM PDT I'm curious people that have already fired, what is your actual lifestyle like in terms of discretionary spending? Are you very careful on what you spend or are you very carefree on what you spend? [link] [comments]  |
| Posted: 08 Jul 2021 10:14 AM PDT Direct indexing is buying all the component stocks to build your own personal index, rather than just buying shares of a professionally-managed index fund, or paying a robo advisor to manage a portfolio for you. Why would you do this?
Why wouldn't you do this?
What are the mechanics of building a direct index?
My personal experience with direct indexing: I initially decided to make a cap-weighted index of about the 500 biggest companies, leaving out the ones I strongly disliked for various reasons (your call whether that's Socially Responsible Investing or just stock picking), my own employer's stock (to avoid violating their trading window rules), and the ones I couldn't easily and affordably buy. I decided to try to own one billionth of each company, because round numbers make the math easy. (So, for example, #1 Apple's market cap is $2.335T, so I should own $2335 of AAPL. #499 Paychex's market cap is $39.12B, so I should own $39.12 of PAYX.) I decided to harvest tax losses whenever I felt like it, and reinvest dividends manually. And I decided that if I had spare cash I would prefer to grow the index beyond the 500 biggest companies, rather than buying larger chunks of each company I already had in the index. I started building my index on January 4, the first day the market was open in 2021. I had enough cash in my account to buy one-billionth of about the biggest 400 companies. I did this totally manually: opened https://companiesmarketcap.com in one browser window, loaded up my brokerage site in another browser window, and started clicking buy. It was a lot of clicking, and I was using limit orders that didn't all succeed, so it actually took me a few days to spend my allocated money. By the time I was done, I owned a billionth or so of most of the 400 biggest companies. (Not all, because some companies are hard or expensive to buy.) I mostly left my index alone until the end of March, other than a few small purchases as dividend money trickled in. But then quarterly estimated taxes were due, and I had taken some capital gains (in transactions not related to this index) in Q1 and needed to pay estimated taxes on those gains to avoid a penalty later, so I decided to sell all my losers, both to reduce my Q1 gains and to raise cash to send to the IRS. 94 of my stocks had gone down in Q1, generating $1780 of tax losses. The others were up, so I wanted to let those gains ride rather than selling and needing to pay taxes on them. At this point, my index had become a lot more complicated. Rather than owning roughly the top 400 stocks by market cap, I now owned about 3/4 of them, and needed to avoid buying back the others for at least 31 days to avoid wash sales. I started to get tired of paging back and forth through my transaction log to manually figure out what I could buy next, so I decided to write a program to do it for me. Basically, I manually download two CSV files from my broker: one with my current holdings and another one with all my stock sales so far this year. And I can scrape a site to find the top n companies by market cap, which is what I want to own. Then the logic is basically to find what I own that's down and tell me to consider selling it, then find the biggest companies that I don't own enough of and tell me to consider buying them. Pretty straightforward, except for avoiding wash sales. The easy way to avoid wash sales is just to never recommend buying or selling anything that I've bought or sold in the last 30 days. (This isn't quite the perfect logic, as not all shares are replacement shares, but it errs on the side of caution, so it's good enough.) Armed with this software, since depleting my index to pay Q1 estimated taxes, I've gradually built the index back up to about the biggest 1100 companies. (Except the ones that are hard or expensive to buy, that I don't want to own, or that I've sold for a tax loss recently and can't buy back yet.) And I've also aggressively sold losers whenever I get bored. At this point my index has generated $2003 of tax losses through the first half of the year. What's left is up $4809. And I have $46056 of stock in the index. So what's the value of a tax loss? It depends on your personal tax situation. In 2021 I expect to have lots of long-term capital gains to offset, in the 15% plus 3.8% plus 5.75% (state) capital gains bracket, or 24.55% total. So $2003 of tax losses saves me about $492 on my taxes this year. In addition the $4809 of capital gains are mine, but I'll have to pay taxes on them someday. If I wait a year for long-term capital gains, and wait until a lower-income year so I don't owe the 3.8% surcharge, I'll owe 20.75% (15% + 5.75%) tax on them, so I'll get to keep $3811 of the gains. So the total after-tax value of the first six months of direct indexing will be about $4303. If I'd bought a low-cost index fund covering approximately the same kinds of stocks like VFIAX or VOO instead, I'd have about the same gains (there is some tracking error but I don't think it's very predictable or systematic, so call it a wash on average), but not the benefit of tax loss harvesting, so I'd probably have about $3811 after tax. So basically the benefit of doing this is the $492 of tax loss harvesting. If I'd used a robo advisor instead, figure they would have given me about the same gains and tax loss harvesting, but I'd have had to pay 0.25% in fees, or about $115. So in this particular case, if I value my time at zero, direct indexing is better than a robo advisor which is better than a fund. However, if I spent a dozen hours on this project, then the $115 I saved by not paying a robo advisor would mean I valued my own time at less than $10 per hour. Chipotle pays $13.50 per hour in my town, so clearly it was not economically rational for me to spend time running a small direct index. If I did not enjoy running a direct index or learn anything from doing it, I'd be better off paying a robo advisor. However, I did enjoy it, and it was a learning experience, and I should be able to increase the size of my index and maintain it in fewer hours in the future. So it was worth doing, for me. In summary, if you want to run your own index, you can. But if it doesn't seem like fun to you, index funds and robo advisors are totally reasonable alternatives. Nobody has to do this. [link] [comments]  |
| My Fire Journey so Far (24M) 65k NW - 55k Income Posted: 08 Jul 2021 08:49 AM PDT Hello everyone First post, been lurking for while. Thought id share my journey so far as I enjoy reading other peoples experiences, journeys, backgrounds ect. Also People tend to enjoy moderate income (I think I might even be low income for SoCAL) stories. Background -24M living in southern California. Parents immigrated to the US late 1980s, dad works his tail off in his construction business, mom part time teacher. 2014- Graduated High school, average grades, went to community college to start my higher education with a business degree. First Job -2015 - Got a full time job at a retail store, Was making good money at 19 years old, about 30-40k while going to community college. Spent every penny I earned on new clothes, gadgets, going out, ect. Was being trained for managerial position, but corporate politics made me repulsed so I left. March 2017 I left my retail job and starting working for my families construction company, starting as a AutoCAD draftsman, taking a decent Paycut as I was working about 30 hours a week and making less (had a lot to learn). Fall 2017, After my 2 years in Community college I transferred to an affordable University to finish my degree in business. I was lucky enough to have my parents cash flow my education, all in all from A-Z it costed just under 20k, and lucky enough to live at home during all this time while I was blowing my money on stupid stuff. Somewhere in the middle of this I bought a new Car with a payment of $525. Throughout this time I was not making very much, and between car payment and being bad with money, I had about 1k to my name + car debt. I was 21 at this point. Summer 2018, I lemoned my new car, got about 10k out of it and went to buy myself my dream car along with a $434 monthly payment, man I love that car! Young and enjoying life for sure, it was just before my 22nd birthday. Had a few thousand to my name, but 23k in car debt. 2019- Got my degree, started to be a little better with money. No significant raises up until October 2019, making about 55k at this point, started saving some money all of 2019 and getting my act together. The Turning point -Jan 1st 2020, had exactly 0 NW. had 17k in my bank, owed 17k on my Car. making 55k. Starting investing right before Covid around Feb 2020, and invested throughout the dips as much as I could. Around June 2020 our company split in half, and my responsibilities went up dramatically as we where trying to the company back on its feet. I was working more and essentially being the 2nd man in the construction Business. Income stayed the same as the company was not in a financial position to request more. August 2020 I moved out with my Girlfriend, adding $1100 rent + utilities and living expenses to my monthly expenses. I sitll owed about 10k on my car, but throughout staying the course and buying the dips, I had 30k invested at this point. was chipping away at the car debt until on March 2021, I paid off my beloved Vehicle. A month later sold it for a more practical daily car, and pocketed 10k due to the crazy used car market. Sold it for 4k less than i bought it, after 3 years and 40k miles. It hurt, I love that car, but I had to make the right choice. My commute is about 400 miles a week in so cal traffic, between gas, driving a manual and 2 fender benders ( neither my fault) it was the right move. Today -Here I am now, July 2021 with the following NW- Paid for car - 18k Emergency fund - 11k Crypto - 4k IRA + Brokerage - 32k (VTSAX VIGAX mainly, couple tesla shares) Total NW - 65k. Overall, im proud of myself for going 0 - 65k in 18months on a modest 55k income in southern californa. Im grateful for the headstart I was given by my parents, but also grateful I wasnt a total idiot during this time. I Guess the main takeaway from the post is - its not how much you make, its what you do with how much you make. If this interests anyone at all I will do an update on my NW journey end of this year, hoping to be at 80k! Feel free to ask any questions, im not the best at explaining things like this so I apologize ahead of time. Edit- Budget added belowRent - $1100 Groceries - $300 Utilities - $50 Gas - $125 Subscriptions - $45 Car Insurance - $130 Phone - $45 Gym - $30 Total $1825 Add in another $175 for misc. stuff, personal buys, amazon orders, clothing, ect. Sometimes I go over, but 2k is usually where I fall. [link] [comments]  |
| Posted: 08 Jul 2021 02:23 PM PDT Has anyone moved from a low cost of living (LCOL) to high cost of living (HCOL) city and track their increase in expenses? I am very curious - outside of rent and a few other areas, is it that significant of a jump in every single one of your expenses? For instance, visiting SF - food/groceries doesn't seem all that more expensive than small town Nevada. Considering moving from small town to a big city. Not sure how to accurately estimate expenses. Curious as to how much that might affect my path to FI. Say I get a 30% bump in salary for the move - does that accommodate lifestyle creep of going from small town to big expensive city? [link] [comments]  |
| Balancing F.I.R.E. with Enjoying Life with Kids Now Posted: 07 Jul 2021 05:13 PM PDT TL/DR: Worth denying young children luxuries and time together now so we can FIRE and be with them full time by high school? Background: Husband and I are both professionals, living in HCOL area, and we have three young children. We both like our jobs a lot but time at home with kids during the pandemic has made us rethink our priorities and I would love to be in a position for us to both leave our jobs and just be with our children (travel, etc.) before they go to college. We want to FIRE long before they move out of the house. But we'd be buying that future time with them by selling time now (side hustles take so much time!) and denying them certain luxuries like summer camp and extracurriculars. And I have some mommy guilt about that. Question: Is it worth it? Is buying time with them later worth the time we lose now, while they're young? [link] [comments]  |
| Real estate syndications as quasi hybrid fixed income/growth component of portfolio Posted: 08 Jul 2021 08:14 AM PDT Is anyone else using real estate syndications to generate current income along with the goal of appreciation of the asset? I posed this question to my financial advisor and have repositioned the fixed income portion of my portfolio to real estate syndications vs any bond exposure. The premise behind this is that real estate has similar correlation with bonds being as interest rates rising lower prices. The argument for syndications in lieu of bonds though was the opportunity for appreciation and growth along with a relatively stable monthly cash flow. Is anyone else using these investments as part of their portfolio or does anyone have an insight that I am missing in regards to things to consider or avoid with this method? [link] [comments]  |
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