Financial Independence Daily FI discussion thread - Saturday, September 18, 2021 |
- Daily FI discussion thread - Saturday, September 18, 2021
- Don’t let debt or lower income hold you back from starting your journey…
- The Ten Commandments of Financial Independence
- If the average 401k plan has a management fee of 1% (outside of expense ratios) and the average “tax drag” on a taxable account that you control is generally 1% isn’t the benefit of a 401k essentially just a wash?
- Getting federal benefits in retirement
| Daily FI discussion thread - Saturday, September 18, 2021 Posted: 18 Sep 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]  |
| Don’t let debt or lower income hold you back from starting your journey… Posted: 17 Sep 2021 04:59 PM PDT If anyone feels like they're too deep in debt and don't make enough money to be financially independent… just know that it takes putting one foot in front of the other. When I met my partner, we had no budget or concept of where money actually went. Though we are pretty serious adults and felt we had our shit together, it still felt like debt or smaller income we were keeping us back from even trying to get ahead. I had some credit cards and student loans, he had car loan and medical bills. He also had overdraft fees from payments that would pull when he didn't expect them (no planning). One day I started following a Mum on Instagram who did a Zero budget for her family on 5 and one 60k income. She showed her tiny IRA and HSA contributions, her cash flowed mini van purchase, and how to take care of the things you own. This woman showed me that my perspective needed to be corrected. Thank god my fiancé goes along with my ideas because I put both he and I on a zero based budget that week. We "pay ourselves" each pay day to our Venmo cards. Everything else gets allocated to debt, bills, and savings. At first it was hard to say "I only have $300 to spend until next pay check…." But then medical bills and car loan got paid off, some credit cards were at $0 and house deposit savings is actually looking healthy. Our credit scores even shot up!! Not to be sounding hippie dippie but I think it even manifested more wealth our way. In the 2 years we have been doing this, our overall household income has gone up $30k/year. My new job has an incredible HSA and 401K match and I plan to max out yearly contributions as soon as that house deposit is solid. I get that we are pretty far away from financial freedom…but at 32 and 35- were still really excited to be where we are and picking up momentum every day. Thanks for reading. Edit: just to say that HELL YES we absolutely are gunning to FI/RE. Setting ourselves up with with the solid foundation we wish we had at 18 (trust fund would have been nice haha) . [link] [comments]  |
| The Ten Commandments of Financial Independence Posted: 17 Sep 2021 07:46 PM PDT Hey all, just some thoughts I put together on Financial Independence. All opinions welcome :) --- I. Thou shalt remember that a penny saved is MORE THAN a penny earned When you save money that you would normally spend, you embrace the double whammy of savings. First, you get one step closer to having the amount of savings you need. Second, you shrink the amount of savings you need. A less expensive lifestyle means a smaller amount of money can sustain it indefinitely. It's as if you were sprinting toward the finish line and the finish line was also sprinting toward you. Now that's what I call a twofer! A worked example: If you spend $40k per year, then if you follow the 4% rule, you need $1 million in the bank to sustain that lifestyle indefinitely ($1,000,000 * 4% return = $40,000). If your car insurance costs $1000 per year and you make that call to save 15%, you get $150 closer to your $1 million dollar goal, every year. But wait, there's more! By reducing your annual expenses, you now only need to save $996,250 to sustain your lifestyle ($996,250 * 4% = $40,000 - $150). So, the finish line has moved closer by $3,750, and you're getting there $150/year faster! II. Thou shalt know thy expenses You can't measure what you can't see. Okay, so that might not be 100% accurate in light of modern physics, but bear with me here. How much money do you spend each month? Does that count the car you need to replace in 3 years? The couch you bought 6 months ago? That dental procedure that you'll never need again? What about your mortgage principal? Aren't you paying that to yourself? Understanding your expenses is not as easy as it seems. To get the full picture, you need to amortize your expenses over their applicable period of use. Before you run away screaming, it's not as hard as it sounds. Remember, you're planning for a sustainable long-term livelihood, so you need to factor things in correctly. If you're going to get a new car every 10 years, apply 1/120th of the cost of the car to each month. That couch you'll replace in 5 years? Apply 1/60th of the cost each month. That dental procedure? If nothing like it is ever happening again, ignore it. Knowing whether you have enough money is composed of two parts: knowing how much is enough, and knowing how much you have. If you're like most people, you don't really know the answer to either of those questions. Knowing your expenses will enable you to know how much money is actually enough to sustain your lifestyle. III. Thou shalt know thy net worth Do you really know your net worth? Does that factor in future taxation of your retirement accounts? The closing costs if you sell your home? Don't add apples to oranges. Boil everything down to one number and track that number's progress. Knowing how much money you have is the other half of knowing whether you have enough. Once you know both how much you have and how much is enough, you're way ahead of the game. IV. Thou shalt value time over money "Better is one handful with some rest than two hands full of toil and chasing the wind." -Ecclesiastes 4:64 "The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run" -Henry David Thoreau Money is only as valuable as you make it. If you work all day and leave no time to enjoy the fruits of your labor or the presence of those you love, your bank account doesn't do you any good. So far, understanding your finances sounds like a lot of work and calculation. But it doesn't have to be. As it turns out, if you distill all of your finances down to one number that makes sense to you, you can move those considerations and calculations into the background and just focus on making that one number move your way. The number that makes the most sense is phrased in units of time. Forget dollars and cents, just understand the amount of time that matters most to you. Planning for retirement? Watch your countdown to retirement accelerate as you improve your habits. Switching jobs from high pay to high fulfillment? Watch the years until your self-actualization melt away as you focus on getting to what matters most. Taking some time off to care for an aging parent or start a business? Track the amount of time until you will run out of money. $1 million means different things to different people. 1 year of life is a precious thing to everyone. Make lasting changes by tracking the thing that means the most: time. V. Thou shalt embrace simplicity "The way to become rich is to put all your eggs in one basket and then watch that basket." - Andrew Carnegie Confusion is paralyzing. If you have a day job, odds are you don't have time to devote the hundreds of hours necessary to truly understand every aspect of your financial life. Don't scatter your attention. It is far easier to boil everything down to as few metrics as possible. It's like trying to get someone to run faster than they've ever run. You could tell them to stay low at the start, focus on turnover, and use their arms efficiently. Or you could take their wallet and run. If you're only tracking one thing, then everything else snaps into place. VI. Thou shalt understand thy goals in their entirety "There's only two kinds of people in the world: the kind of people who think there's such a thing as enough money and the kind of people who have money." - Fran Lebowitz Fill in the blank: "As soon as I ______, I will be happy." Fact is, you have what it takes to be happy now. However, there may be something to what you put in that blank. If it is worthwhile, then stop dreaming and start doing. You know where you are, so now figure out all the important details about where you want to go. What will cost more? What will cost less? What will it do to your income? What will it do to your hourly wage? Come up with a fulfilling goal that is about more than money. "Enough" money will never come, so don't fool yourself. VII. Thou shalt live in the moment "That the present is all we have to live in. Or to lose." - Marcus Aurelius You know that time is more important than money, so it is time to start acting like it. If you are unable to enjoy the present moment, what makes you so confident that you will enjoy all the time you're saving up for the future? Opt in to each moment of life, dive into the relationships that matter to you and don't lose focus on the things that are truly most important. VIII. Thou shalt act in thine own enlightened best interest So you know where you are, where you are going, and what the right steps are to get there. Now it comes down to execution. When you're on a diet, you know the chocolate cake is not the right choice. Don't succumb and let your plans go to waste. Take your newfound knowledge and execute the plan. If you're content to be a cog in the machine, just keep doing what you're doing. If your life is more valuable than that, have the courage to take responsibility and start living in the direction of your plans. IX. Thou shalt not deprive thyself excessively Financial Independence is all about sustainability. When you're cutting expenses, it is important to distinguish between fat, flesh, and bone. Maybe dropping your weekly pizza delivery will get you 6 months closer to your dream life. But if your dream life isn't so dreamy without pizza, don't fool yourself. If you deprive yourself now, then the impact on your expenses is only valid if you plan on depriving yourself forever. Don't lie to yourself about the price of your optimal life. X. Thou shalt produce Financial Independence does not mean never working again. It means having enough money to live your ideal life without worrying about money. If you're someone who is interested in putting in the time and effort to achieve Financial Independence, the chances are pretty good that you're also someone who is not going to be satisfied kicking their heels up until you kick the bucket. The key to a happy experience with Financial Independence is to use your newfound independence making tangible progress working on something that is meaningful to you. Work is not something to be avoided, it is something to be embraced, provided that the work is wholesome, meaningful, and fulfilling. The good news is, that means Financial Independence is even closer than you think. You don't need to solve for having enough money to never make money again. You just need to solve for having enough money to supplement the income that will be the byproduct of the fulfilling work you do after achieving Financial Independence. Thanks for reading! [link] [comments]  |
| Posted: 18 Sep 2021 01:27 PM PDT First of all I would like to start by saying I wholeheartedly agree with always taking the company match. However beyond any matching benefit, why do people recommend maxing out a 401k before moving on to a taxable account? If the average plan management fee is 1% and average tax drag of a taxable account is 1% this essentially means there's no clear benefit to the 401k, right? Why not just get the 401k match, max out IRA contributions (no cost outside of expense ratio of investments) and then move on to everything else going toward a standard investment account for greater flexibility? Edit… also adding the following: The withdrawals from the 401k will still be taxed as earned income in retirement. Long term capital gains on a taxable account is a lot more tax efficient. For example currently you can withdraw about $100k a year while paying 0% in taxes if married and with the standard deduction. The taxable account essentially becomes a Roth in that situation. So you can withdraw the first $100k tax free from taxable and then the next whatever amount from Roth and effectively pay 0% tax in retirement, no? [link] [comments]  |
| Getting federal benefits in retirement Posted: 17 Sep 2021 04:17 PM PDT So has anyone looked into working for the Federal Government (for a short time period) in order to get their benefits in retirement or what the requirements are surrounding it? Biggest benefit is that cover 72% of the cost. Just looking see if this is something to investigate further https://www.opm.gov/faqs/topic/insure/index.aspx?cid=880bfba8-8f8b-4e64-9a72-fae98408fd0e 5 years doesn't sound straight forward, but #1 I'm confused about, "To continue your health benefits enrollment into retirement, you must: (1) have retired on an immediate annuity (that is, an annuity which begins to accrue no later than one month after the date of your final separation); and (2) have been continuously enrolled (or covered as a family member) in any FEHB Program plan (not necessarily the same plan) for the five years of service immediately preceding retirement, or if less than five years, for all service since your first opportunity to enroll." If you have any insight on this, that would be great. [link] [comments]  |
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