Author Topic: 41 year old Bay area resident - When is the earliest I be FI?  (Read 7261 times)

samwalton

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Hi all, very new to MMM forums and am really loving all the info, kicking myself for not having discovered this earlier!

Here’s my life situation: I am 41 years old, married filing jointly with 2 kids. I live in the bay area CA in a very HCOL neighborhood. My job is relatively stable and low stress but my DW's is a lot more challenging. I am however, sick of corporate life and want to do something different including spending more time with kids, starting my own business (not sure what though…). Not convinced that DW and I see eye to eye on this but I would love your opinion on what changes we could make to become FI earlier that could free me up from corporate drudgery. Ready for face punches …please be gentle!

Income:  I make 220K as my base salary and my bonuses average about 60K a year and my wife makes 110K, with an average bonus of 15K, so Gross income ~405K per year. With 40% tax and pretax withholdings(Federal, state, SS, medicare, 401K, healthcare plans etc), we take home about 195K per year. We expect to continue making more money as we are both doing well in our careers.

Assets/Liabilities:

401K /IRA balance: 610K across both DW and me in target retirement fund accounts.  We max out our 401K upto $18.5K each, and our company matches are pretty generous (10% and 4% match respectively).
 
FSA: 5K towards dependent care FSA per year

529 plans: 66K current balance and I contribute 14K per year towards said plan. Hopefully I have enough to put them through an instate public univ when they are ready for college in the next 7 to 11 years.

Cash: 75K in emergency funds

Investments: 75K in vested company stock (across both me and DW) + 3K in micro lending loans. We get stock options every year that vest over a three year period but they are variable. Current value of unvested stock is ~130K, so advantageous to stay employed for the foreseeable future.
We have also recently  started socking away $1250 a month in a low cost ETF with a current balance of $3750 as of now.

Rental property: Own a Single family townhouse with ~800K in equity. Mortgage is ~440K at 4.1% fixed interest rate and 7K in property taxes. Rental expenses are relatively low, about 2K per year at the max. Current MV is ~1.25 M. I also have a HELOC on this property with a 110K balance (to pay for improvements on current house), variable ARM with a 10 year draw period. I am paying $440 a month for interest and $1000 towards principle to pay it off as quickly as possible. We rent it out for $3750 a month and that covers mortgage+HOA+property taxes+HELOC interest, so I pretty much break even with it while building equity in the house, not to mention the significant appreciation in value. I could be renting it for more but we are very happy with our tenants and are OK foregoing any increase to keep them. With property literally selling the same day with all cash offers in the bay area, I can confident that we can make this liquid in a very short period of time if required.

Primary residence: 900K in equity in the house that I currently live in. Mortgage is ~1M with 3.75% 30 year fixed interest rate and 15K in property taxes. MV of ~1.9M. Can similarly be divested in a relatively short period of time.
Both properties are in a Trust.

No other loans of any kind. Both cars (honda fit and honda pilot over 10 years old and fully paid off. Plan to drive them to the ground.

Overall net worth (without company unvested stock and primary home equity): ~1.5M (~2.5M if you include both).

Current expenses per month:
Mortgages+Heloc loan payment: $9100
Utilities: 600
Insurance (rental/primary property/umbrella/cars): 260
Childcare (Tuition for after school care/classes etc): 1500
Phone bill: 115
Gas:300
Groceries: 1200
Restaurants: 1000
Charity: 800
Gym membership : 260
Home maintenance: 100
Clothing/Shoes: 200
Gifts: 300
Personal care: 300
Home improvement: 200
Misc: 400

Total ~16.3K/mo

Please keep in mind that this is the bay area and stuff is expensive..everything from groceries to childcare to restaurants etc.

Specific Q’s: Assuming we want to maintain the same standard of living in the same area, when is the earliest I can FI? Am I house poor and should I divest myself of my rental property to diversify? If I sell both properties and move to a LCOL area NOW am I FI already (assuming expenses drop as well to adjust for COL)? Any tax tips?

Thanks!
« Last Edit: May 07, 2018, 10:03:25 PM by samwalton »

Another Reader

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #1 on: May 07, 2018, 07:01:28 PM »
Seven years ago (2011) you would not have been able to sell your properties all cash in days.  My neighbor's house topped out at $1,200,000 in early 2007 and they short sold due to a job loss for $785,000 in 2011.  The short sale took around six months.  That same house is probably worth $1,5-$1,600,000 today.

In my view, you are grossly over leveraged.  Why did you pull a HELOC on the rental?  That rental property will not look like such a deal when your tenants lose their jobs and move out and you have to pick up three months of vacancy loss plus rent it at 25 percent less when you find a tenant.  If you or your wife lose your jobs, you are in a world of hurt.  That $75k won't last long at your burn rate. 

In your shoes, I would consider selling the townhouse and redeploying the net proceeds into unlevered investments.  Your liquid net worth is too low to carry both mortgages for an extended downturn where one or both of you are unemployed.

In short, you are playing musical chairs with your assets.  When the music stops, you might be one of the players that doesn't get a chair.

I will let others here tell you your expenses are ridiculous.  My only comment is cutting them dramatically won't help much when there is a downturn and the SHTF.  Your burn rate is just too high.
« Last Edit: May 07, 2018, 07:13:38 PM by Another Reader »

former player

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #2 on: May 07, 2018, 08:16:33 PM »
If you are not charging market rent you are chosing to give money to your tenants as an act of charity.  Why do you think you need to forgo increases in rent in order to keep your tenants? Why do you need to keep your tenants? 

My view is that good tenants will be able to pay market rates or close to them.  If they can't afford market rents, there may be subsidized housing or downsizing options for them.  If you want to make charitable contributions to housing issues there are probably better or more needy recipients than your tenants.

If you can't bring yourself to charge market rents you are better off selling the property to someone who will and putting the money in the stock market (I don't suppose you will be inclined to make a charitable donation in the form of paying higher investment fees than necessary).


MDM

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #3 on: May 07, 2018, 08:24:46 PM »
Assuming we want to maintain the same standard of living in the same area, when is the earliest I can FI?
What do the simple "time to FI" calculator in the case study spreadsheet and more sophisticated calculators from Best and/or Recommended Retirement Calculator - Bogleheads.org tell you?

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #4 on: May 07, 2018, 10:35:59 PM »
Seven years ago (2011) you would not have been able to sell your properties all cash in days.  My neighbor's house topped out at $1,200,000 in early 2007 and they short sold due to a job loss for $785,000 in 2011.  The short sale took around six months.  That same house is probably worth $1,5-$1,600,000 today.

In my view, you are grossly over leveraged.  Why did you pull a HELOC on the rental?  That rental property will not look like such a deal when your tenants lose their jobs and move out and you have to pick up three months of vacancy loss plus rent it at 25 percent less when you find a tenant.  If you or your wife lose your jobs, you are in a world of hurt.  That $75k won't last long at your burn rate. 

In your shoes, I would consider selling the townhouse and redeploying the net proceeds into unlevered investments.  Your liquid net worth is too low to carry both mortgages for an extended downturn where one or both of you are unemployed.

In short, you are playing musical chairs with your assets.  When the music stops, you might be one of the players that doesn't get a chair.

I will let others here tell you your expenses are ridiculous.  My only comment is cutting them dramatically won't help much when there is a downturn and the SHTF.  Your burn rate is just too high.

Thanks for your reply! I got the Heloc to pay for improvements on our current house (updated on my OP). Agreed that our burn rate is really high.  We've sort of been operating under the assumption (maybe misplaced) that we can cut down significantly in the event that one of us loses our jobs, though this scenario seems remote given that we work for well established highly profitable companies. In any event, I do realize that our expenses are out of control and we have to make significant changes asap to get on the path to FI. On the real estate, I agree that we are overleveraged and should consider diversifying and improving our liquid net worth. However, I believe that the high real estate valuations in the bay area are driven by supply and demand, so unless there is a significant market downturn that (along the lines of 2008/09 meltdown, which the bay area weathered nicely I think) due to a broader economic depression, I don't see property values dropping significantly, so I'm in a quandary as to whether I should continue to hang on to the rental or get out while the going is good. 

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #5 on: May 07, 2018, 10:37:29 PM »
Assuming we want to maintain the same standard of living in the same area, when is the earliest I can FI?
What do the simple "time to FI" calculator in the case study spreadsheet and more sophisticated calculators from Best and/or Recommended Retirement Calculator - Bogleheads.org tell you?

Thanks for the reply! Tbh, I recently discovered the forum and have not gotten the change to play with some of the tools, so thanks for the links, will check them out!

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #6 on: May 07, 2018, 10:42:25 PM »
If you are not charging market rent you are chosing to give money to your tenants as an act of charity.  Why do you think you need to forgo increases in rent in order to keep your tenants? Why do you need to keep your tenants? 

My view is that good tenants will be able to pay market rates or close to them.  If they can't afford market rents, there may be subsidized housing or downsizing options for them.  If you want to make charitable contributions to housing issues there are probably better or more needy recipients than your tenants.

If you can't bring yourself to charge market rents you are better off selling the property to someone who will and putting the money in the stock market (I don't suppose you will be inclined to make a charitable donation in the form of paying higher investment fees than necessary).

Thanks for the reply! We had a bad experience with our previous tenants, hence our reluctance to change our existing tenants who have been amazing, and we could at the most get a couple hundred more which to me is not worth it.

former player

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #7 on: May 07, 2018, 11:11:22 PM »
If you are not charging market rent you are chosing to give money to your tenants as an act of charity.  Why do you think you need to forgo increases in rent in order to keep your tenants? Why do you need to keep your tenants? 

My view is that good tenants will be able to pay market rates or close to them.  If they can't afford market rents, there may be subsidized housing or downsizing options for them.  If you want to make charitable contributions to housing issues there are probably better or more needy recipients than your tenants.

If you can't bring yourself to charge market rents you are better off selling the property to someone who will and putting the money in the stock market (I don't suppose you will be inclined to make a charitable donation in the form of paying higher investment fees than necessary).

Thanks for the reply! We had a bad experience with our previous tenants, hence our reluctance to change our existing tenants who have been amazing, and we could at the most get a couple hundred more which to me is not worth it.
Careful screening of tenants might let through the occasional one who runs into trouble (I had tenants who started paying a bit late after having a child but were paid up when they left) but there are actually a fair number of good tenants out there: the ones you have now are not your only option.

$200 off a rent of nearly $4k is almost a 5% discount, which is not insignificant.  The important thing in the future will be not to let the rent fall any further behind market comparables: make sure that you put the rent up enough in the future to stop it turning into a 10% or greater discount.  Don't be scared into "we must never put the rent up again": that way lies financial ruin on an investment property.

cchrissyy

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #8 on: May 07, 2018, 11:18:17 PM »
honestly you have enough in your 401k and equity to be FIRE now if you had spending under control. it's funny how you have such high cash flow but not really much saved except the money locked up in those areas.  this is a cash and accounts problem not an asset problem. you can sell/change the assets if you really want to downshift or FIRE. in your case I'd even consider selling the primary residence and renting somewhere cheaper. your mortgage and taxes on the $1.9m house are overwhelming the picture. (you bought it recently though?)

you shouldn't have 110k on a heloc paying interest while you have cash in the bank and so much money flowing in. pay it off. in a true emergency, you could draw on it again.

as far as your below-market rental, start raising it every year and don't fall behind on that any more. good tenants are worth a lot but everyone in the bay area expects rent to raise somewhat every year. you won't lose them by pushing it upward as long as they like the place and you aren't overly greedy about it.

I have the same family size and spend 1/3 that much on groceries and restaurants. compared to other folks on this site, those are my not-so-frugal categories! search the forum for tips, I'm sure you can slash these without feeling real sacrifice.

you have an expensive gym. do you really both use it enough to justify the price?

1500/m for childcare is reasonable when they're young but am I right your kids are now school age, 11 and 7? that is a HUGE figure for lessons, babysitter, sports, etc for kids who are school age!  I can see half that much for a full-time aftercare program at the school or YMCA or whatever, here in the bay area. but whatever else is driving up this cost should get another look for sure

SnackDog

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #9 on: May 08, 2018, 04:46:29 AM »
You are in a bit of a squeeze.  You left taxes off your monthly spending which pushes it to $18k or $216K/yr.  That is nuts.  As noted, food, gym, and mortgage are out of control.  You need to sell a property and get your expenses down to about $120K/yr or $10K/mo.  Then, you can do a proper forecast of savings rate to get to $3MM invested. It's going to take a few years (maybe 8) even saving $200K/yr.  So I would target retirement at age 50.

Your million dollar mortgage is going to keep you working for a while.   Find a way to get that down by half. 

Maybe sell or rent the house and move into the town house.  Or sell the town house and pay off the mortgage on the primary home.  Values appear to be peaking in the Bay area just now and a lot of landlords are selling.  My renters are panicking that I will sell and begging for news on the lease renewal even though it is 6 months away.  I always raise with market rates even though it is a crazy amount.  They are both older physicians with no kids.  Great tenants and seemingly loaded with income (judging by the exotic vehicles in the driveway). I have had three excellent tenants in 10 years and no months without rent.  I screen tenants pretty hard.


Ben Kurtz

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #10 on: May 08, 2018, 07:40:38 AM »
You are working simply for the privilege of working in the Bay Area.

That's it.

You don't need your wages to purchase food, shelter, clothing, medicine or any other silly thing. Nothing.

Meditate on that for a week before doing anything else.

If are done with the corporate rat race and really want a change of pace, sell everything, move to a more normal cost-of-living area of Salt Lake City or Denver or Austin, buy a solid but not ostentatious house for around half a million dollars, and live off dividend income. If you want to be really simple-minded about it, just pay all your capital gains taxes at once, take the hit, and be free. You'll still probably have well above $1,750,000 in productive investments which will yield plenty of spending money for living costs, especially with no mortgage or rent to worry about.

If you want to get fancy and tax-efficient about it, you might want to look into 1031 exchange when you sell the rental property to enable you to buy another investment property in your new town. A lot of lower-cost-of-living areas have better valuation metrics on investment properties from a purchase price vs. cash flow perspective. The tax rules allow a married couple to shelter $500,000 of gains on the sale of their primary residence (if the ownership trust is pass-through for tax purposes I would imagine the result is unchanged, but best to ask your tax adviser), so the tax question only really applies to the rental property, and another strategy would be to sell the main house, live in the town house for two years (minimum time it takes to establish a primary residence for this rule), sell that, then move away. Don't even need a 1031 exchange. But I wouldn't let the tax tail wag the dog here. 

There's plenty to do -- jobs, recreation, civic organizations -- in those cities, so chances are you'll probably end up with some kind of active income even after the move, if only to avoid boredom or idleness. But you'll have complete freedom to choose exactly the sorts of activities that make you happy and leave you as much time as you like for your family and friends, because the associated earnings will have no connection to your ability to maintain a comfortable standard of living and will not be required for financial security.

Congratulations! You won at the Game of Life. Now just sack up and cash in your winning chips while you are still young enough to enjoy it. 

Well, there's also the small matter of getting your wife on board. Both with some tightening up of the spending (which others have remarked upon) which will speed your savings for however much longer you remain employed in the rat race and provide you with a greater margin of safety when you pull the rip cord -- not that you need to tighten up much on your numbers -- as well as with the very idea that you're financially free to quit work and embark on a radical change of direction.

I'd suggest doing your homework on the numbers a bit first and then discussing the topic with your wife on a values / philosophical level. I would not suggest bombarding here with a Powerpoint presentation out of the blue, but rather being able to sit down and say something like "I'm growing tired of the rat race and would like to spend less time working and more time with family, and I think you might feel the same way too. I'd like to do more [enumerate stuff] with the kids and with the family. I suspect that if I ran the numbers, it might be possible to sell everything and move to a more laid-back city and have enough money in the bank that we'd never be required to work again if we didn't want to. I'd still like to do some [teaching/consulting/skydiving instructing] to remain professionally engaged, but on my own terms and in a way that doesn't interfere too much with family life. How do you feel about these things?" Hopefully the conversation develops to something between "that sounds great" and "I've never even thought that was possible, but you think it can be done -- so show me the numbers." Then you go off any draft that Powerpoint presentation.

thepuglife

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #11 on: May 08, 2018, 09:39:48 AM »
If you are not charging market rent you are chosing to give money to your tenants as an act of charity.  Why do you think you need to forgo increases in rent in order to keep your tenants? Why do you need to keep your tenants? 

My view is that good tenants will be able to pay market rates or close to them.  If they can't afford market rents, there may be subsidized housing or downsizing options for them.  If you want to make charitable contributions to housing issues there are probably better or more needy recipients than your tenants.

If you can't bring yourself to charge market rents you are better off selling the property to someone who will and putting the money in the stock market (I don't suppose you will be inclined to make a charitable donation in the form of paying higher investment fees than necessary).

Thanks for the reply! We had a bad experience with our previous tenants, hence our reluctance to change our existing tenants who have been amazing, and we could at the most get a couple hundred more which to me is not worth it.
Careful screening of tenants might let through the occasional one who runs into trouble (I had tenants who started paying a bit late after having a child but were paid up when they left) but there are actually a fair number of good tenants out there: the ones you have now are not your only option.

$200 off a rent of nearly $4k is almost a 5% discount, which is not insignificant.  The important thing in the future will be not to let the rent fall any further behind market comparables: make sure that you put the rent up enough in the future to stop it turning into a 10% or greater discount.  Don't be scared into "we must never put the rent up again": that way lies financial ruin on an investment property.

I have been a landlord in the Bay Area for 15 years now and I have to agree with the OP that charging a good tenant a somewhat below market rate is a rational business practice. If one views this as a simple dollars and cents issue, than obviously one should charge the market rate. But landlording is a people business and I have found tenants who are paying less than market rate to be much easier to deal with. My peace of mind is worth a lot to me and I like dealing with happy customers. Also, I attended a work shop on legal landlord/tenant issues and one of the attorneys pointed out that she rarely sees cases that escalate to litigation where the landlord and tenant had a good relationship before an event like an accident on the property. Tenants, like any other customers, appreciate a service provider who rewards their loyalty. If you don't try to get every cent you can out of them, tenants are less likely to sue you even if they have a case.


Another Reader

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #12 on: May 08, 2018, 12:18:02 PM »
I bought my house for around $355k in 1988, pre-construction.  By the time I closed, there were 2,500 names on the waiting list.  The same model sold for $525k not too long after I closed.  A year later, there were zero names on the waiting list and a bunch of unsold inventory.  I watered the street tree at an unsold house on my street for almost two years.  The value of my house dropped to $400k.  Luckily, the builder owned the land outright and was well capitalized.  By 1995, values recovered and a new phase opened.  They sold in the $500's and $600's and went up for a couple of more years.  Then there was another, smaller dip. maybe ten percent.  After that, things went up steadily until early 2007.

The real estate market is cyclical, even in the Bay Area. Yes, the general trend is up, but if you get caught in a downturn with no cash and no job, you will have to sell at whatever price the market will bear at that time.

A lot of astute investors are selling now.  If my rental here was vacant, I would sell.  All it takes is a decrease in the flow of cash from overseas or a decline in the tech business to undermine the market.  And don't forget there is an earthquake coming...
« Last Edit: May 08, 2018, 01:11:32 PM by Another Reader »

oldmannickels

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #13 on: May 08, 2018, 12:40:02 PM »

Income:  I make 220K as my base salary and my bonuses average about 60K a year and my wife makes 110K, with an average bonus of 15K, so Gross income ~405K per year. With 40% tax and pretax withholdings(Federal, state, SS, medicare, 401K, healthcare plans etc), we take home about 195K per year. We expect to continue making more money as we are both doing well in our careers.


Current expenses per month:

Total ~16.3K/mo


Take home pay $195,000 /  12 = $16,250
Current monthly Expenses = $16,300

So like, never.

diapasoun

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #14 on: May 08, 2018, 01:31:30 PM »
First, congrats on looking at your expenses, and thinking about where you can go from here. You are very lucky to have the incomes you have, and you have significant assets. You can allow yourselves a good pat on the back for that! It sets you up nicely for moving forward.

Now, for a wee bit of facepunching. ;) You spend sooooo much! You definitely don't need to spend that much, and I'm going to guess that honestly you're probably not happy with a lot of that spending. I would suggest you start tracking your spending (if you aren't already) and at the end of every month, looking at what you've spent in each category. Does your spending align with your values, goals, and priorities? Or is it mis-aligned? From your spending, I see that you value an expensive house and lots of very expensive food, both in and outside the home; I also see that you value charity. Would you like your spending to reflect an even greater concern for charity, your kids' 529s, and other important things? If so -- do the work to get it there.

For the specifics: First, I too live in the Bay Area, and have for over a decade; I have a decent perspective on the costs, I think. Others have mentioned the mortgage and your tenants, so I won't talk about that. What I'm focusing on:

Easy cuts:

1. Gym membership: $260 is REALLY high. Drop it. The only way this remotely makes sense is if both spouses are working with a trainer -- e.g. an MMA gym, numerous sessions with a personal trainer, etc. If you are working with a trainer, evaluate whether you really need a trainer. You probably don't, not long-term. If you're not working with a trainer, you are at an overly boutique gym. You don't somehow burn more calories or build more muscle just because you're paying a lot for a boutique gym. Move to a MUCH cheaper gym, or start doing workouts out of the home. At the price you're paying, you could buy some really nice equipment for a home gym and come out on top after less than a year -- AND you wouldn't have the excuse of the gym being inconvenient.

2. Gifts. $300 a month? That's $3600/year on gifts. In my spendiest years, I blew $600 on gifts the entire year -- birthdays, Christmas, everything. Why are you spending so much on gifts, and in what ways does spending that much contribute to your happiness? Are you trying to keep up with the Joneses on this? Are you trying to soothe family relationships which would benefit more from honest conversation and care than from expensive gifts? What's going on?

Some more compicated cuts:

1. Utilities. $600 is high; our six person rental in a highly inefficient Victorian ranges $450-600/mo, depending on if we need to heat the house that month or not. Do you have a pool? Are you running tons of AC/heating? If you own your own place, what can you do to make it more energy-efficient? This will involve some effort to figure out, because you may not know where your energy sinks are. However, cutting $100/mo is both (a) $1200 in your pocket every year (or your kids' 529s, or a charity's budget, or...) and (b) $100/mo you don't have to fund in retirement.

2. Groceries. $1200 is really high. Boyfriend and I spend ~$400/mo on groceries, and we eat WELL, because food is one of my favorite pleasures in life. You're at $300/mo per person, which is a very luxurious allotment, especially when two are children. Where are you shopping, and what are you buying?

General advice: go to Sprouts, Grocery Outlet, or other places that have good prices, and start buying more beans and vegetables and less meat and pre-processed foods. If you are spending $260/mo on the gym, presumably you care about your health; you will also help yourself by not buying expensive pre-pepped meals, unhealthy snack foods, and the like. You will still eat so, so many delicious meals. There's a wealth of advice on this forum about cheap delicious healthy eats, and if you want one good place to look for recipes, check out budgetbytes.com -- it's a mainstay 'round these parts.

3. Restaurants. $1000 is $12k/year. With your grocery budget, you spend $28,800 a year on food. Let that sink in. I used to gross $18k in the Bay Area and lived on that wage for six years. You spend more on food than I spent on everything! Whoa. Does that align with your values? If it doesn't -- the answer is that you just need to stop going out. It's hard, I know it is, especially with children when you may not want to cook and delivery is so much easier. But at this point, your kids are old enough to start helping you in the kitchen. See this as time to spend with your family, skills to pass on to your kids, and the joy of using a well-appointed kitchen (assuming your kitchen better be nice if you have a $1m mortgage).
 
4. Charity. I personally commend your charitable contributions, because I think charity is incredibly important. If this is in line with your values, I wouldn't change it, actually, although others on this forum may criticize you for it. Either way, do make sure your spending here is effective!

Ben Kurtz

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #15 on: May 08, 2018, 01:43:57 PM »
So like, never.

More like "yesterday."

But I still think you and I agree to quite a large extent. I wrote earlier:

"You are working simply for the privilege of working in the Bay Area.

That's it."

I think your analysis of his cash flow just proves that point even more strongly. The appreciation on the OP's stocks and properties is carrying his net worth forward, as is the principal paydown embedded in the mortgage payment. Plus, I get the impression that the "take home" figure is after 401k deductions, so that's another $37,000 per year being added to net worth. Plus, I get the impression that the value of the vesting stock options are not counted in that "take home" figure, which probably gave him a big boost in earlier years.

So I exaggerated -- there is some positive net worth movement coming out of his job. But really, not enough to matter.

If you look at the OP's ex-housing budget, he's in the $80,000 per year range, which is hugely wasteful to folks around here. But it also means that there is almost certainly a huge amount of fat that can be cut nearly painlessly once he steps away from the rat race and moves to a slightly lower cost of living area. With a $2,500,000 net worth, he doesn't even have to cut that much fat in order to enable himself to buy a nice house in that MCOL area and live in his usual manner strictly off passive income. And if he scrounges up a $40,000 / year income in early retirement to bolster his figures he'll be well placed to die a very wealthy man.

All it takes is the courage to say "yes."

Laura33

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #16 on: May 08, 2018, 02:04:37 PM »
Well, your @$16K/yr target budget comes out to about $200K/yr spend, so the 4% rule says you need $5M in invested assets to cover that nut in perpetuity.  So your home equity doesn't count, unless you plan to sell and downsize significantly.

You can account for real estate in this by subtracting the rental income from your required budget -- e.g., so if you are netting $10K/yr profit from your rental, then that means you only need to cover $190K/y of expenses, which brings your needed 'stache down to $4.75M.  Right now, though, that figure comes in at about zero, since it seems like the house is paying for itself but nothing else.  As a result, if you want to RE while keeping that rental, you either need to wait until that mortgage is paid off, or save more to cover your costs until that point.

There are many people who have ridden rental units to FIRE.  But generally speaking, they do that by finding good rental units -- i.e., those that turn a significant profit every year.  What you are doing is speculating on property -- you are holding that unit hoping for more appreciation, rather than enjoying a steady stream of profits.  And that is really no different than buying one single stock, on margin, and crossing your fingers that it turns out to be Amazon or Apple instead of some dot-com bust. 

Sure, right now, you can sell on a dime.  Great.  The problem is, as others have noted, the events that typically cause you to need to sell quickly also tend to have a significant effect on the housing market and thus make it difficult to actually sell for any reasonable amount if you need to.  2008 was not a once-in-a-lifetime aberration.  I personally went through exactly the same thing from @1998-2004 (and in the end was lucky to "only" lose @$50K on my house (although it was closer to $120K in value from when we first put it on the market).  Thousands of others went through the same thing in the late '80s.  Sure, you may get lucky and decide to cash in at just the right time -- just like there are always people who are going to manage to sell all their stocks at the market peak.  But it's not a very reliable strategy to assume that you're going to be that guy.

IMO, you should sell the rental and invest in either other units that turn a better profit or put the money in VTSAX.  Sure, getting appreciation in your property value is great.  But you know what's better?  Getting appreciation in your property value and turning a big fat monthly profit in the process.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #17 on: May 08, 2018, 02:38:16 PM »
If you are not charging market rent you are chosing to give money to your tenants as an act of charity.  Why do you think you need to forgo increases in rent in order to keep your tenants? Why do you need to keep your tenants? 

My view is that good tenants will be able to pay market rates or close to them.  If they can't afford market rents, there may be subsidized housing or downsizing options for them.  If you want to make charitable contributions to housing issues there are probably better or more needy recipients than your tenants.

If you can't bring yourself to charge market rents you are better off selling the property to someone who will and putting the money in the stock market (I don't suppose you will be inclined to make a charitable donation in the form of paying higher investment fees than necessary).

Thanks for the reply! We had a bad experience with our previous tenants, hence our reluctance to change our existing tenants who have been amazing, and we could at the most get a couple hundred more which to me is not worth it.
Careful screening of tenants might let through the occasional one who runs into trouble (I had tenants who started paying a bit late after having a child but were paid up when they left) but there are actually a fair number of good tenants out there: the ones you have now are not your only option.

$200 off a rent of nearly $4k is almost a 5% discount, which is not insignificant.  The important thing in the future will be not to let the rent fall any further behind market comparables: make sure that you put the rent up enough in the future to stop it turning into a 10% or greater discount.  Don't be scared into "we must never put the rent up again": that way lies financial ruin on an investment property.

I have been a landlord in the Bay Area for 15 years now and I have to agree with the OP that charging a good tenant a somewhat below market rate is a rational business practice. If one views this as a simple dollars and cents issue, than obviously one should charge the market rate. But landlording is a people business and I have found tenants who are paying less than market rate to be much easier to deal with. My peace of mind is worth a lot to me and I like dealing with happy customers. Also, I attended a work shop on legal landlord/tenant issues and one of the attorneys pointed out that she rarely sees cases that escalate to litigation where the landlord and tenant had a good relationship before an event like an accident on the property. Tenants, like any other customers, appreciate a service provider who rewards their loyalty. If you don't try to get every cent you can out of them, tenants are less likely to sue you even if they have a case.


Fully agree! What I'm essentially paying for by forgoing a couple hundred dollars in rent is peace of mind, given my previous experience with tenants.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #18 on: May 08, 2018, 02:47:13 PM »
honestly you have enough in your 401k and equity to be FIRE now if you had spending under control. it's funny how you have such high cash flow but not really much saved except the money locked up in those areas.  this is a cash and accounts problem not an asset problem. you can sell/change the assets if you really want to downshift or FIRE. in your case I'd even consider selling the primary residence and renting somewhere cheaper. your mortgage and taxes on the $1.9m house are overwhelming the picture. (you bought it recently though?)

you shouldn't have 110k on a heloc paying interest while you have cash in the bank and so much money flowing in. pay it off. in a true emergency, you could draw on it again.

as far as your below-market rental, start raising it every year and don't fall behind on that any more. good tenants are worth a lot but everyone in the bay area expects rent to raise somewhat every year. you won't lose them by pushing it upward as long as they like the place and you aren't overly greedy about it.

I have the same family size and spend 1/3 that much on groceries and restaurants. compared to other folks on this site, those are my not-so-frugal categories! search the forum for tips, I'm sure you can slash these without feeling real sacrifice.

you have an expensive gym. do you really both use it enough to justify the price?

1500/m for childcare is reasonable when they're young but am I right your kids are now school age, 11 and 7? that is a HUGE figure for lessons, babysitter, sports, etc for kids who are school age!  I can see half that much for a full-time aftercare program at the school or YMCA or whatever, here in the bay area. but whatever else is driving up this cost should get another look for sure

Thanks for your reply! Yes, I used my liquid assets to buy the real estate, hence the illiquid nature of our assets.
Fair call on the gym, as we barely use it, so it's on the chopping block. Also, I need to seriously consider paying down my Heloc with cash reserves as well, in the event we decide to continue to rent the property out. My kids are school age and are involved in a lot of activities (music, sports, art) which costs quite a bit where I live. This is one area that we feel is well worth the expense, but we need to reconsider the other stuff on the expense list.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #19 on: May 08, 2018, 02:50:06 PM »
I bought my house for around $355k in 1988, pre-construction.  By the time I closed, there were 2,500 names on the waiting list.  The same model sold for $525k not too long after I closed.  A year later, there were zero names on the waiting list and a bunch of unsold inventory.  I watered the street tree at an unsold house on my street for almost two years.  The value of my house dropped to $400k.  Luckily, the builder owned the land outright and was well capitalized.  By 1995, values recovered and a new phase opened.  They sold in the $500's and $600's and went up for a couple of more years.  Then there was another, smaller dip. maybe ten percent.  After that, things went up steadily until early 2007.

The real estate market is cyclical, even in the Bay Area. Yes, the general trend is up, but if you get caught in a downturn with no cash and no job, you will have to sell at whatever price the market will bear at that time.

A lot of astute investors are selling now.  If my rental here was vacant, I would sell.  All it takes is a decrease in the flow of cash from overseas or a decline in the tech business to undermine the market.  And don't forget there is an earthquake coming...

Great points and completely agree. WE are overleveraged on real estate right now and have to rebalance. You are all putting me on a path to selling the townhouse in short order!

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #20 on: May 08, 2018, 02:57:49 PM »
You are working simply for the privilege of working in the Bay Area.

That's it.

You don't need your wages to purchase food, shelter, clothing, medicine or any other silly thing. Nothing.

Meditate on that for a week before doing anything else.

If are done with the corporate rat race and really want a change of pace, sell everything, move to a more normal cost-of-living area of Salt Lake City or Denver or Austin, buy a solid but not ostentatious house for around half a million dollars, and live off dividend income. If you want to be really simple-minded about it, just pay all your capital gains taxes at once, take the hit, and be free. You'll still probably have well above $1,750,000 in productive investments which will yield plenty of spending money for living costs, especially with no mortgage or rent to worry about.

If you want to get fancy and tax-efficient about it, you might want to look into 1031 exchange when you sell the rental property to enable you to buy another investment property in your new town. A lot of lower-cost-of-living areas have better valuation metrics on investment properties from a purchase price vs. cash flow perspective. The tax rules allow a married couple to shelter $500,000 of gains on the sale of their primary residence (if the ownership trust is pass-through for tax purposes I would imagine the result is unchanged, but best to ask your tax adviser), so the tax question only really applies to the rental property, and another strategy would be to sell the main house, live in the town house for two years (minimum time it takes to establish a primary residence for this rule), sell that, then move away. Don't even need a 1031 exchange. But I wouldn't let the tax tail wag the dog here. 

There's plenty to do -- jobs, recreation, civic organizations -- in those cities, so chances are you'll probably end up with some kind of active income even after the move, if only to avoid boredom or idleness. But you'll have complete freedom to choose exactly the sorts of activities that make you happy and leave you as much time as you like for your family and friends, because the associated earnings will have no connection to your ability to maintain a comfortable standard of living and will not be required for financial security.

Congratulations! You won at the Game of Life. Now just sack up and cash in your winning chips while you are still young enough to enjoy it. 

Well, there's also the small matter of getting your wife on board. Both with some tightening up of the spending (which others have remarked upon) which will speed your savings for however much longer you remain employed in the rat race and provide you with a greater margin of safety when you pull the rip cord -- not that you need to tighten up much on your numbers -- as well as with the very idea that you're financially free to quit work and embark on a radical change of direction.

I'd suggest doing your homework on the numbers a bit first and then discussing the topic with your wife on a values / philosophical level. I would not suggest bombarding here with a Powerpoint presentation out of the blue, but rather being able to sit down and say something like "I'm growing tired of the rat race and would like to spend less time working and more time with family, and I think you might feel the same way too. I'd like to do more [enumerate stuff] with the kids and with the family. I suspect that if I ran the numbers, it might be possible to sell everything and move to a more laid-back city and have enough money in the bank that we'd never be required to work again if we didn't want to. I'd still like to do some [teaching/consulting/skydiving instructing] to remain professionally engaged, but on my own terms and in a way that doesn't interfere too much with family life. How do you feel about these things?" Hopefully the conversation develops to something between "that sounds great" and "I've never even thought that was possible, but you think it can be done -- so show me the numbers." Then you go off any draft that Powerpoint presentation.

Thank you for this very thoughtful post and you are exactly right. We are paying for the privilege of living in the bay area! The quandary is that we love the bay area with its weather, diversity, culture and just the sheer amount of things to do, so it's quite a difficult decision to leave. I realize that it is something we have to do if we are to become FI now, and I am sure there are a number of other places where we could be just as happy, but a difficult decision nonetheless.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #21 on: May 08, 2018, 03:11:14 PM »
So like, never.

More like "yesterday."

But I still think you and I agree to quite a large extent. I wrote earlier:

"You are working simply for the privilege of working in the Bay Area.

That's it."

I think your analysis of his cash flow just proves that point even more strongly. The appreciation on the OP's stocks and properties is carrying his net worth forward, as is the principal paydown embedded in the mortgage payment. Plus, I get the impression that the "take home" figure is after 401k deductions, so that's another $37,000 per year being added to net worth. Plus, I get the impression that the value of the vesting stock options are not counted in that "take home" figure, which probably gave him a big boost in earlier years.

So I exaggerated -- there is some positive net worth movement coming out of his job. But really, not enough to matter.

If you look at the OP's ex-housing budget, he's in the $80,000 per year range, which is hugely wasteful to folks around here. But it also means that there is almost certainly a huge amount of fat that can be cut nearly painlessly once he steps away from the rat race and moves to a slightly lower cost of living area. With a $2,500,000 net worth, he doesn't even have to cut that much fat in order to enable himself to buy a nice house in that MCOL area and live in his usual manner strictly off passive income. And if he scrounges up a $40,000 / year income in early retirement to bolster his figures he'll be well placed to die a very wealthy man.

All it takes is the courage to say "yes."

Yes, the take home figure is after our 401K contribution, which adds ~37K to our net worth annually, not to mention the matching contributions which add another ~20K, we are socking away a total of 57K a year in 401K alone. We've been spending this amount because we've never explored that idea that we can be FI, but there is a lot of fat that can easily be cut if we move to a LCOL area. As you astutely noted, it takes courage to make the move, which I've unable to muster so far. Thank heavens that I discovered this forum, my eyes are open and we can finally get on track to become FI!

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #22 on: May 08, 2018, 03:17:46 PM »
Well, your @$16K/yr target budget comes out to about $200K/yr spend, so the 4% rule says you need $5M in invested assets to cover that nut in perpetuity.  So your home equity doesn't count, unless you plan to sell and downsize significantly.

You can account for real estate in this by subtracting the rental income from your required budget -- e.g., so if you are netting $10K/yr profit from your rental, then that means you only need to cover $190K/y of expenses, which brings your needed 'stache down to $4.75M.  Right now, though, that figure comes in at about zero, since it seems like the house is paying for itself but nothing else.  As a result, if you want to RE while keeping that rental, you either need to wait until that mortgage is paid off, or save more to cover your costs until that point.

There are many people who have ridden rental units to FIRE.  But generally speaking, they do that by finding good rental units -- i.e., those that turn a significant profit every year.  What you are doing is speculating on property -- you are holding that unit hoping for more appreciation, rather than enjoying a steady stream of profits.  And that is really no different than buying one single stock, on margin, and crossing your fingers that it turns out to be Amazon or Apple instead of some dot-com bust. 

Sure, right now, you can sell on a dime.  Great.  The problem is, as others have noted, the events that typically cause you to need to sell quickly also tend to have a significant effect on the housing market and thus make it difficult to actually sell for any reasonable amount if you need to.  2008 was not a once-in-a-lifetime aberration.  I personally went through exactly the same thing from @1998-2004 (and in the end was lucky to "only" lose @$50K on my house (although it was closer to $120K in value from when we first put it on the market).  Thousands of others went through the same thing in the late '80s.  Sure, you may get lucky and decide to cash in at just the right time -- just like there are always people who are going to manage to sell all their stocks at the market peak.  But it's not a very reliable strategy to assume that you're going to be that guy.

IMO, you should sell the rental and invest in either other units that turn a better profit or put the money in VTSAX.  Sure, getting appreciation in your property value is great.  But you know what's better?  Getting appreciation in your property value and turning a big fat monthly profit in the process.

Thank you for your post! I agree that we are speculating now, so need to rebalance the portfolio while cutting down on expenses significantly.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #23 on: May 08, 2018, 03:29:46 PM »
First, congrats on looking at your expenses, and thinking about where you can go from here. You are very lucky to have the incomes you have, and you have significant assets. You can allow yourselves a good pat on the back for that! It sets you up nicely for moving forward.

Now, for a wee bit of facepunching. ;) You spend sooooo much! You definitely don't need to spend that much, and I'm going to guess that honestly you're probably not happy with a lot of that spending. I would suggest you start tracking your spending (if you aren't already) and at the end of every month, looking at what you've spent in each category. Does your spending align with your values, goals, and priorities? Or is it mis-aligned? From your spending, I see that you value an expensive house and lots of very expensive food, both in and outside the home; I also see that you value charity. Would you like your spending to reflect an even greater concern for charity, your kids' 529s, and other important things? If so -- do the work to get it there.

For the specifics: First, I too live in the Bay Area, and have for over a decade; I have a decent perspective on the costs, I think. Others have mentioned the mortgage and your tenants, so I won't talk about that. What I'm focusing on:

Easy cuts:

1. Gym membership: $260 is REALLY high. Drop it. The only way this remotely makes sense is if both spouses are working with a trainer -- e.g. an MMA gym, numerous sessions with a personal trainer, etc. If you are working with a trainer, evaluate whether you really need a trainer. You probably don't, not long-term. If you're not working with a trainer, you are at an overly boutique gym. You don't somehow burn more calories or build more muscle just because you're paying a lot for a boutique gym. Move to a MUCH cheaper gym, or start doing workouts out of the home. At the price you're paying, you could buy some really nice equipment for a home gym and come out on top after less than a year -- AND you wouldn't have the excuse of the gym being inconvenient.

2. Gifts. $300 a month? That's $3600/year on gifts. In my spendiest years, I blew $600 on gifts the entire year -- birthdays, Christmas, everything. Why are you spending so much on gifts, and in what ways does spending that much contribute to your happiness? Are you trying to keep up with the Joneses on this? Are you trying to soothe family relationships which would benefit more from honest conversation and care than from expensive gifts? What's going on?

Some more compicated cuts:

1. Utilities. $600 is high; our six person rental in a highly inefficient Victorian ranges $450-600/mo, depending on if we need to heat the house that month or not. Do you have a pool? Are you running tons of AC/heating? If you own your own place, what can you do to make it more energy-efficient? This will involve some effort to figure out, because you may not know where your energy sinks are. However, cutting $100/mo is both (a) $1200 in your pocket every year (or your kids' 529s, or a charity's budget, or...) and (b) $100/mo you don't have to fund in retirement.

2. Groceries. $1200 is really high. Boyfriend and I spend ~$400/mo on groceries, and we eat WELL, because food is one of my favorite pleasures in life. You're at $300/mo per person, which is a very luxurious allotment, especially when two are children. Where are you shopping, and what are you buying?

General advice: go to Sprouts, Grocery Outlet, or other places that have good prices, and start buying more beans and vegetables and less meat and pre-processed foods. If you are spending $260/mo on the gym, presumably you care about your health; you will also help yourself by not buying expensive pre-pepped meals, unhealthy snack foods, and the like. You will still eat so, so many delicious meals. There's a wealth of advice on this forum about cheap delicious healthy eats, and if you want one good place to look for recipes, check out budgetbytes.com -- it's a mainstay 'round these parts.

3. Restaurants. $1000 is $12k/year. With your grocery budget, you spend $28,800 a year on food. Let that sink in. I used to gross $18k in the Bay Area and lived on that wage for six years. You spend more on food than I spent on everything! Whoa. Does that align with your values? If it doesn't -- the answer is that you just need to stop going out. It's hard, I know it is, especially with children when you may not want to cook and delivery is so much easier. But at this point, your kids are old enough to start helping you in the kitchen. See this as time to spend with your family, skills to pass on to your kids, and the joy of using a well-appointed kitchen (assuming your kitchen better be nice if you have a $1m mortgage).
 
4. Charity. I personally commend your charitable contributions, because I think charity is incredibly important. If this is in line with your values, I wouldn't change it, actually, although others on this forum may criticize you for it. Either way, do make sure your spending here is effective!

Thank you for such a well thought out and detailed post and for the face punch! I really appreciate it. Largely, I would say that our values are not aligned with where we spend, and to compound it, we spend way too much in those categories,  We do track our expenses, but now need to go more granular and figure out where and why we are spending so much on groceries, restaurants etc and bring be disciplined about it. Agree on charity and definitely don't want to cut that down.

Ben Kurtz

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #24 on: May 08, 2018, 03:51:57 PM »
We are paying for the privilege of living in the bay area! The quandary is that we love the bay area with its weather, diversity, culture and just the sheer amount of things to do, so it's quite a difficult decision to leave. I realize that it is something we have to do if we are to become FI now, and I am sure there are a number of other places where we could be just as happy, but a difficult decision nonetheless.

As long as you are not perishing in misery in your current setup, you don't have to make any rash decisions. The first step is simply to realize that FI/RE is possible, and read up on the details. The second step is to explore the idea with your wife, to see how you might feel about FI/RE as a family.

You could probably engineer a comfortable FI/RE setup in the Bay Area on a net worth of $3,500,000 or thereabouts. Say $1,250,000 tied up in a residence (e.g. your current townhouse) and $2,250,000 in productive investments to provide passive income. At the 4% safe withdrawal rate rule, that gives you an annual spending budget of $90,000 to cover everything else -- income tax (which will be lower than you think because investment income is generally treated more favorably than wage income), property tax, insurance, food, utilities, transportation, entertainment, activities, travel, etc., which is not a million miles from your current lifestyle. But you'd need to increase your net worth by another million dollars to get there, which could easily take 10 more years. You could even FI/RE in the Bay Area on your current $2,500,000 net worth, but it would require a much greater re-engineering of your affluent middle-class lifestyle to fit that into the budget. Or, to return to my original suggestion, you could FI/RE on your current $2,500,000 net worth right now and retain a very comfortable upper-middle-class lifestyle, with modest tweaks for efficiency, in a less costly location.

For next few weeks or months, just stay in listening and learning mode. Then start thinking aloud with your wife. Next family vacation, take a road-trip through the mountain west and visit a few of the leading cities. Don't succumb to inertia or analysis-paralysis, but equally don't rush off half-cocked. It's not a race.

Evgenia

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #25 on: May 08, 2018, 03:59:01 PM »
We've been FIRE for 3 years and live in SF.  We have chosen to stay in a HCOL area, and I want to be a "contrary voice" that says you don't need to leave the Bay Area to lower your cost of living. Other things matter, like roots, friends, family ties, and just plain liking where you live.

And the value of staying here for in-state Cal and Cal State tuition levels cannot be overestimated. Also, without your high income because you're FIRE, your kids will qualify for more financial aid, eh? ;)

My blog has a lot of financial details on our situation and how we live the FIRE life in SF, so I won't belabor them here, but in the interest of full disclosure my husband and I both choose to work about 33 hours/month between us. This means we live on that money (and still add to IRAs and savings), and are not drawing down savings, because the tax benefits of self employment are awesome (all health insurance premiums tax deductible, home office, business expenses, mileage, etc.). Hack the tax code, look poor on paper.

So, if I were you, I would...

Sell at least one property, cut your expenses, and you're basically FIRE tomorrow. Prices are high right now (the house we bought five years ago would sell for triple based on recent sales on our street), and savvy people are selling. Take advantage of it. Yes, we have a serious housing shortage that does not appear it will end anytime soon, but you need cash and the financing on the rental is not cheap.

You could also sell both properties and stay fairly nearby in the region, with all the benefits of the area, with a greatly reduced cost of living - think Ukiah, Gualala, areas around Davis, etc. Here, I just found your new house for $300k in a great area of Ukiah, walkable and urban - and damn, Black Oak coffee shop is so good, and so is the food co-op:
https://www.trulia.com/p/ca/ukiah/1711-lockwood-dr-ukiah-ca-95482--2085220134

School wise, there are a lot of choices in the area.

And then you're really done. Forever. You don't need the $1500/month childcare anymore. We have several friends who have considered FIRE but did not think they could stand being around their kids all day. If that's the case with you guys (not to say it is), just know that sometimes kids behave better when life is calmer, made less hectic by two jobs and commutes, and they have their parents around more. It is something we've seen happen a few times.

As you've noted, you have a lot of expenses you can cut. Get thee to Costco (Ukiah is getting a new one) and reduce that grocery budget by cooking at home more, which you'll also have more time to do. We have friends with four kids and they spend less than the annual food-stamp allowance for a family of their size, mostly with bulk food purchases and a garden. We buy grass-fed, grazed whole lamb and half cows for $4/pound and keep it in the chest freezer. You can shave $4-500 off your grocery bill each month by not even suffering that much.

So now we're at no childcare and reduced grocery costs with $2k/month back in your budget right there, in a paid-for house you bought cash for $300k with low taxes, in the general area you want to be in. Fabulous. If you feel like it, you can work part-time at a nearby winery, or an organic farm, or both. Take jaunts out to the ocean, hike, and enjoy your sweet life of freedom in our golden Republic of California. :-)
« Last Edit: May 08, 2018, 04:00:55 PM by Evgenia »

MustacheAnxiety

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #26 on: May 08, 2018, 04:14:17 PM »
Based on your post it sounds like you are interested in retiring but would prefer to maintain a similar lifestyle in the same area.

1) +1 for selling your rental property.  Based on your description the property is not cash flowing even though you have some equity in the home and you do not seem to be budgeting for vacancy or maintenance.  Relying on continued property appreciation to make this large investment profitable is not recommended as you cannot rely on this windfall (I know prices have skyrocketed in your area but that means you have substantial risk of prices falling too).  Finally, if you are looking to FIRE you need assets that produce money, not ones that might produce money in the future.

2) Your expenses are high, even for the fat FIRE crowd.  I am curious what they look like without rental expenses (I would track these separately as the rental is at least paying for itself). 

a) Take advantage of living somewhere that is beautiful every day:
Utilities: 600 - what the flipity flip are you spending 600 a month on when everyday is 65 degrees?
Gym membership : 260 - When it is an option in sunny, comfort I find outside a way better place to get exercise than the gym
Have a garden; have your kids help. Delicious produce to reduce your bills and a family activity in the Cali sunshine.

b) artificial suffering makes children into better adults
I appreciate the desire to give your kids everything when you can.  Hopefully, these two will be the best 2 things you do with your life.  That said 7 and 11 is basically old enough to look after themselves (when together).  To the extent $1500 a month is just supervision consider giving this up no later than when your oldest turns 12.  Providing your kids with less stuff, that is less fancy, and making them work for some of it will be a pain in the butt for you and your wife, but it isn't to save you money (even though it will) it is to help give your kids the same foundational values that you grew up with that made you smart, hardworking, and charitable people.

c) Don't be wasteful: Eating fancy food is a good time, but I cannot fathom a $1200 grocery budget + a $1,000 restaurant budget that doesn't involve considerable waste.  Start working these bills down first by planning to avoid throwing food away.  That doesn't mean rigorous preplanning of all your meals. Just make sure you eat up your fruit and veggies before you go out and buy a bunch more, and put leftover meat in the freezer long before it goes bad.

d) Make sure you are taking care of your current largest asset.  $300 sounds like a tiny sum to budget for home maintenance for a 1.9M house.  Maybe you are surprisingly bigtime DIYers, but that doesn't seem to be the case.

e) Drive less.  Driving isn't fun (at least not commuting and shuffling kids to activities ).  $300 in gas seems like a lot of miles even if you drive gas guzzlers.  300/$3 per gallon *22mpg = 2200 miles per month.  Figure out a way to get out of your car.  Maybe that is moving closer to school/work, maybe it is telling your kids they must find a car pool buddy for any of the $1500 per month in activities they want to keep up with.  (Making kiddo find a car pool buddy is one of those great character building shyness/discomfort getting over experiences.)

f) Be an efficiency minded and paranoid crazy person.  I'm not sure what the $300 a month personal care is for, but getting your nails done is gross.  I know some places are better about sterilizing tools than others.  But nobody is sterilizing nail polish between customers.  Chances are somebodies toes were full of fungus earlier that day http://www.berkeleywellness.com/self-care/preventive-care/article/lowdown-toenail-fungus.  Also, if you are an impatient person cutting your own hair is an absolute joy.  No appointments, no waiting, no chit chat, and the salon is open 24/7.

The advice boils down to think about each of your expenses.  They can all be cut, but you should be able to find thousands of dollars that will be happiness neutral or even happiness increasing.  The above has 6 ideas, hopefully a few work for you and you can find a few more.

As far as the specific questions: When can you FIRE?  It really depends sometime between now (if you think you really will sell the rental and start your own business) and when you have 5M in invested assets.
Any tax tips?  (1) Do a backdoor Roth IRA.  (2) With the new tax rules (24K standard deduction, no personal exemption, 10K cap on state and local tax deduction) figure out if you will still itemize every year.  With the huge mortgage, I suspect you are still itemizing annually.  But if/when that changes take advantage of your generous hearts and open a donor advised fund so you can make several years of charitable donations at once and then take advantage of the new large standard deduction in non-charity years.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #27 on: May 08, 2018, 10:31:02 PM »
We are paying for the privilege of living in the bay area! The quandary is that we love the bay area with its weather, diversity, culture and just the sheer amount of things to do, so it's quite a difficult decision to leave. I realize that it is something we have to do if we are to become FI now, and I am sure there are a number of other places where we could be just as happy, but a difficult decision nonetheless.

As long as you are not perishing in misery in your current setup, you don't have to make any rash decisions. The first step is simply to realize that FI/RE is possible, and read up on the details. The second step is to explore the idea with your wife, to see how you might feel about FI/RE as a family.

You could probably engineer a comfortable FI/RE setup in the Bay Area on a net worth of $3,500,000 or thereabouts. Say $1,250,000 tied up in a residence (e.g. your current townhouse) and $2,250,000 in productive investments to provide passive income. At the 4% safe withdrawal rate rule, that gives you an annual spending budget of $90,000 to cover everything else -- income tax (which will be lower than you think because investment income is generally treated more favorably than wage income), property tax, insurance, food, utilities, transportation, entertainment, activities, travel, etc., which is not a million miles from your current lifestyle. But you'd need to increase your net worth by another million dollars to get there, which could easily take 10 more years. You could even FI/RE in the Bay Area on your current $2,500,000 net worth, but it would require a much greater re-engineering of your affluent middle-class lifestyle to fit that into the budget. Or, to return to my original suggestion, you could FI/RE on your current $2,500,000 net worth right now and retain a very comfortable upper-middle-class lifestyle, with modest tweaks for efficiency, in a less costly location.

For next few weeks or months, just stay in listening and learning mode. Then start thinking aloud with your wife. Next family vacation, take a road-trip through the mountain west and visit a few of the leading cities. Don't succumb to inertia or analysis-paralysis, but equally don't rush off half-cocked. It's not a race.

Great advice! Got a lot of reading and catching up to do!

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #28 on: May 08, 2018, 10:37:14 PM »
We've been FIRE for 3 years and live in SF.  We have chosen to stay in a HCOL area, and I want to be a "contrary voice" that says you don't need to leave the Bay Area to lower your cost of living. Other things matter, like roots, friends, family ties, and just plain liking where you live.

And the value of staying here for in-state Cal and Cal State tuition levels cannot be overestimated. Also, without your high income because you're FIRE, your kids will qualify for more financial aid, eh? ;)

My blog has a lot of financial details on our situation and how we live the FIRE life in SF, so I won't belabor them here, but in the interest of full disclosure my husband and I both choose to work about 33 hours/month between us. This means we live on that money (and still add to IRAs and savings), and are not drawing down savings, because the tax benefits of self employment are awesome (all health insurance premiums tax deductible, home office, business expenses, mileage, etc.). Hack the tax code, look poor on paper.

So, if I were you, I would...

Sell at least one property, cut your expenses, and you're basically FIRE tomorrow. Prices are high right now (the house we bought five years ago would sell for triple based on recent sales on our street), and savvy people are selling. Take advantage of it. Yes, we have a serious housing shortage that does not appear it will end anytime soon, but you need cash and the financing on the rental is not cheap.

You could also sell both properties and stay fairly nearby in the region, with all the benefits of the area, with a greatly reduced cost of living - think Ukiah, Gualala, areas around Davis, etc. Here, I just found your new house for $300k in a great area of Ukiah, walkable and urban - and damn, Black Oak coffee shop is so good, and so is the food co-op:
https://www.trulia.com/p/ca/ukiah/1711-lockwood-dr-ukiah-ca-95482--2085220134

School wise, there are a lot of choices in the area.

And then you're really done. Forever. You don't need the $1500/month childcare anymore. We have several friends who have considered FIRE but did not think they could stand being around their kids all day. If that's the case with you guys (not to say it is), just know that sometimes kids behave better when life is calmer, made less hectic by two jobs and commutes, and they have their parents around more. It is something we've seen happen a few times.

As you've noted, you have a lot of expenses you can cut. Get thee to Costco (Ukiah is getting a new one) and reduce that grocery budget by cooking at home more, which you'll also have more time to do. We have friends with four kids and they spend less than the annual food-stamp allowance for a family of their size, mostly with bulk food purchases and a garden. We buy grass-fed, grazed whole lamb and half cows for $4/pound and keep it in the chest freezer. You can shave $4-500 off your grocery bill each month by not even suffering that much.

So now we're at no childcare and reduced grocery costs with $2k/month back in your budget right there, in a paid-for house you bought cash for $300k with low taxes, in the general area you want to be in. Fabulous. If you feel like it, you can work part-time at a nearby winery, or an organic farm, or both. Take jaunts out to the ocean, hike, and enjoy your sweet life of freedom in our golden Republic of California. :-)

Thank you for the contrarian view and for sharing your blog! I checked out some of your material and there is a ton of great material that I have to read through now. We do love the bay area would love to stay here if we can rebalance and get our expenses in order.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #29 on: May 08, 2018, 10:43:02 PM »
Based on your post it sounds like you are interested in retiring but would prefer to maintain a similar lifestyle in the same area.

1) +1 for selling your rental property.  Based on your description the property is not cash flowing even though you have some equity in the home and you do not seem to be budgeting for vacancy or maintenance.  Relying on continued property appreciation to make this large investment profitable is not recommended as you cannot rely on this windfall (I know prices have skyrocketed in your area but that means you have substantial risk of prices falling too).  Finally, if you are looking to FIRE you need assets that produce money, not ones that might produce money in the future.

2) Your expenses are high, even for the fat FIRE crowd.  I am curious what they look like without rental expenses (I would track these separately as the rental is at least paying for itself). 

a) Take advantage of living somewhere that is beautiful every day:
Utilities: 600 - what the flipity flip are you spending 600 a month on when everyday is 65 degrees?
Gym membership : 260 - When it is an option in sunny, comfort I find outside a way better place to get exercise than the gym
Have a garden; have your kids help. Delicious produce to reduce your bills and a family activity in the Cali sunshine.

b) artificial suffering makes children into better adults
I appreciate the desire to give your kids everything when you can.  Hopefully, these two will be the best 2 things you do with your life.  That said 7 and 11 is basically old enough to look after themselves (when together).  To the extent $1500 a month is just supervision consider giving this up no later than when your oldest turns 12.  Providing your kids with less stuff, that is less fancy, and making them work for some of it will be a pain in the butt for you and your wife, but it isn't to save you money (even though it will) it is to help give your kids the same foundational values that you grew up with that made you smart, hardworking, and charitable people.

c) Don't be wasteful: Eating fancy food is a good time, but I cannot fathom a $1200 grocery budget + a $1,000 restaurant budget that doesn't involve considerable waste.  Start working these bills down first by planning to avoid throwing food away.  That doesn't mean rigorous preplanning of all your meals. Just make sure you eat up your fruit and veggies before you go out and buy a bunch more, and put leftover meat in the freezer long before it goes bad.

d) Make sure you are taking care of your current largest asset.  $300 sounds like a tiny sum to budget for home maintenance for a 1.9M house.  Maybe you are surprisingly bigtime DIYers, but that doesn't seem to be the case.

e) Drive less.  Driving isn't fun (at least not commuting and shuffling kids to activities ).  $300 in gas seems like a lot of miles even if you drive gas guzzlers.  300/$3 per gallon *22mpg = 2200 miles per month.  Figure out a way to get out of your car.  Maybe that is moving closer to school/work, maybe it is telling your kids they must find a car pool buddy for any of the $1500 per month in activities they want to keep up with.  (Making kiddo find a car pool buddy is one of those great character building shyness/discomfort getting over experiences.)

f) Be an efficiency minded and paranoid crazy person.  I'm not sure what the $300 a month personal care is for, but getting your nails done is gross.  I know some places are better about sterilizing tools than others.  But nobody is sterilizing nail polish between customers.  Chances are somebodies toes were full of fungus earlier that day http://www.berkeleywellness.com/self-care/preventive-care/article/lowdown-toenail-fungus.  Also, if you are an impatient person cutting your own hair is an absolute joy.  No appointments, no waiting, no chit chat, and the salon is open 24/7.

The advice boils down to think about each of your expenses.  They can all be cut, but you should be able to find thousands of dollars that will be happiness neutral or even happiness increasing.  The above has 6 ideas, hopefully a few work for you and you can find a few more.

As far as the specific questions: When can you FIRE?  It really depends sometime between now (if you think you really will sell the rental and start your own business) and when you have 5M in invested assets.
Any tax tips?  (1) Do a backdoor Roth IRA.  (2) With the new tax rules (24K standard deduction, no personal exemption, 10K cap on state and local tax deduction) figure out if you will still itemize every year.  With the huge mortgage, I suspect you are still itemizing annually.  But if/when that changes take advantage of your generous hearts and open a donor advised fund so you can make several years of charitable donations at once and then take advantage of the new large standard deduction in non-charity years.

Thanks for the detailed and thorough analysis! Looks like its pretty unanimous across the responses I've received that we need to sell our rental and rebalance our portfolio asap, in addition to significantly cutting down on expenses and save more! BTW, I did do a backdoor Roth this year and yes we are itemizing our deductions. Love your tip about the donor-advised fund, will investigate that when we assess our tax situation this year.

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #30 on: May 08, 2018, 10:45:56 PM »
We've been FIRE for 3 years and live in SF.  We have chosen to stay in a HCOL area, and I want to be a "contrary voice" that says you don't need to leave the Bay Area to lower your cost of living. Other things matter, like roots, friends, family ties, and just plain liking where you live.

And the value of staying here for in-state Cal and Cal State tuition levels cannot be overestimated. Also, without your high income because you're FIRE, your kids will qualify for more financial aid, eh? ;)

My blog has a lot of financial details on our situation and how we live the FIRE life in SF, so I won't belabor them here, but in the interest of full disclosure my husband and I both choose to work about 33 hours/month between us. This means we live on that money (and still add to IRAs and savings), and are not drawing down savings, because the tax benefits of self employment are awesome (all health insurance premiums tax deductible, home office, business expenses, mileage, etc.). Hack the tax code, look poor on paper.

So, if I were you, I would...

Sell at least one property, cut your expenses, and you're basically FIRE tomorrow. Prices are high right now (the house we bought five years ago would sell for triple based on recent sales on our street), and savvy people are selling. Take advantage of it. Yes, we have a serious housing shortage that does not appear it will end anytime soon, but you need cash and the financing on the rental is not cheap.

You could also sell both properties and stay fairly nearby in the region, with all the benefits of the area, with a greatly reduced cost of living - think Ukiah, Gualala, areas around Davis, etc. Here, I just found your new house for $300k in a great area of Ukiah, walkable and urban - and damn, Black Oak coffee shop is so good, and so is the food co-op:
https://www.trulia.com/p/ca/ukiah/1711-lockwood-dr-ukiah-ca-95482--2085220134

School wise, there are a lot of choices in the area.

And then you're really done. Forever. You don't need the $1500/month childcare anymore. We have several friends who have considered FIRE but did not think they could stand being around their kids all day. If that's the case with you guys (not to say it is), just know that sometimes kids behave better when life is calmer, made less hectic by two jobs and commutes, and they have their parents around more. It is something we've seen happen a few times.

As you've noted, you have a lot of expenses you can cut. Get thee to Costco (Ukiah is getting a new one) and reduce that grocery budget by cooking at home more, which you'll also have more time to do. We have friends with four kids and they spend less than the annual food-stamp allowance for a family of their size, mostly with bulk food purchases and a garden. We buy grass-fed, grazed whole lamb and half cows for $4/pound and keep it in the chest freezer. You can shave $4-500 off your grocery bill each month by not even suffering that much.

So now we're at no childcare and reduced grocery costs with $2k/month back in your budget right there, in a paid-for house you bought cash for $300k with low taxes, in the general area you want to be in. Fabulous. If you feel like it, you can work part-time at a nearby winery, or an organic farm, or both. Take jaunts out to the ocean, hike, and enjoy your sweet life of freedom in our golden Republic of California. :-)

Agree with this view.  It is possible to live a very frugal life in SF if you avoid high housing costs and eating out, and instead eat farm fresh, in season, plus foods available at local discount sources, as mentioned.

With a bit more in liquid investments, like a few million in an index fund, you could easily also stay in SF area with your incomes.  This seems quite possible, after a few OMYs at accellerated high saving rates, plus once your options vest.  I would set a specific target, like $3M by 50 yrs old in a vanguard fund plus paid off home.   If you want to move to a LCOL, you are there with ease by 45, for sure.

Get your money working harder by divesting out of the rental unit, save more by cutting expenses.  However, the key will be upping savings by cutting spending and avoiding huge spends like remodeling the home.  Not sure how much you spent there, but our kitchen works fine with the used stove we bought from a remodeling couple for 200 dollars, when our 30year old GE oven/stove broke...it looks fine too. I suggest you make a budget and written savings goal with a plan you can share with your kids, so they learn why your team is cutting out the junk food and the expensive gym.  Maybe track a stock account savings balance with them, so they can see it grow too.

If your wife wants a spendy lifestyle, dont go overboard.  A good, happy marriage for me would trump my FIRE plans.  Semi MMM is better than divorced and FIRE'd.

Sage advice....I would prefer to be married than FIRE'd! We did have plans for a few upgrades for our primary home but need to reassess that in light of all this great info.

affordablehousing

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #31 on: May 09, 2018, 01:10:36 PM »
I think you're doing just fine and would recommend not selling the rental. It sounds like it holds its own. If it's in the Mission, there's still plenty of juice in the housing market and it should continue to appreciate. One other thing to consider, is that having a rental is SUPER important if you want your kids to live in SF too (without you dying, haha). Getting a house from parents was the way many of our friends were able to return to SF in their 20's before they made the $600K a year or so it takes to comfortably buy a $2MM house in the Sunset.

Just a reminder that sure SF is expensive to live in, in some ways, but it doesn't sound like you guys work toooo hard, pull down reasonable salaries for the area, and appreciate the community, so I would just keep on rocking.

One pet peeve, you call SF diverse?? I'd say it is the least diverse place on the planet- 0 republicans, 0 religious people, 0 intolerant people, 0 poor people (there are homeless but no one talks to them). Maybe hyperbole but at least admit that you like living where everyone agrees all the time. 

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #32 on: May 09, 2018, 02:59:42 PM »
I think you're doing just fine and would recommend not selling the rental. It sounds like it holds its own. If it's in the Mission, there's still plenty of juice in the housing market and it should continue to appreciate. One other thing to consider, is that having a rental is SUPER important if you want your kids to live in SF too (without you dying, haha). Getting a house from parents was the way many of our friends were able to return to SF in their 20's before they made the $600K a year or so it takes to comfortably buy a $2MM house in the Sunset.

Just a reminder that sure SF is expensive to live in, in some ways, but it doesn't sound like you guys work toooo hard, pull down reasonable salaries for the area, and appreciate the community, so I would just keep on rocking.

One pet peeve, you call SF diverse?? I'd say it is the least diverse place on the planet- 0 republicans, 0 religious people, 0 intolerant people, 0 poor people (there are homeless but no one talks to them). Maybe hyperbole but at least admit that you like living where everyone agrees all the time.

Hi, yes, I guess we're doing fine if we are content slaving away till we turn 65 or so till we have paid off both houses. With regard to the real estate, the issue is that both properties are in the same neighborhood, so its pretty risky if there is a market downturn or an earthquake. Also, I said "Bay area", not SF! I think the bay area is diverse, especially compared to a small town in the midwest where I lived for a number of years!

Tuskalusa

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #33 on: May 10, 2018, 10:34:30 PM »
i agree with the folks who are advising that you sell one of the properties. While I agree that property values are currently skyrocketing, I don’t think that’s a good reason to hold so much leverage in real estate. If anything, this is a good opportunity to consolidate and live comfortably in your favorite property. The Valley is doing great right now, but downturns happpen, and layoffs happen. With your current cash flow and leverage situation, one layoff could cause some significant strife.

I’m guessing that your town home would fly off the market with multiple bids over the asking price. Selling the townhome would allow you to retire some debt, build some investments, and cut some expenses.  This could be a good way to move your plans towards FIRE. At the very least, it somewhat shields you from the next potential downturn, whenever it comes.

An YES!  I agree that the Silicon Valley is diverse. Great place! 

fuzzy math

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #34 on: May 11, 2018, 09:02:03 AM »
I think everyone else here has done a great job of picking apart your expenses, and giving you general lifestyle advice. Continue to read, try to get your wife to read up on it too, and really have a discussion. Small town midwest <------------|----------------|------------------|---------------> Bay area. I think you could be happy living anywhere beyond the 25% most ideologically similar areas to where you grew up. I moved from the great utopia of the PNW to a college town in the midwest and have shaved my working years from 20+ to 8. There's nowhere worth living if you can't truly live. Your expenses tell me that you're paying to simplify everything (meals out etc) because you lack time. Your children have a finite time at home and you have a finite time on this planet. Capitalize off that while you can.

I also want to point out a logistical fallacy you subscribe to. "We both work in the Bay area at big companies therefore we will never be laid off".

My BIL works in your same industry likely. He is at the level you are (if not higher based on salaries). He was laid off when some new bigwig came in and de-funded his entire department. Never discount shareholders coming in, companies rebalancing the books, some VP getting a hair brained idea. Just because a company is profitable doesn't mean it won't ever make a REALLY STUPID decision and lay you off. Companies look more profitable when they cut the fat (those $300k option / bonused salaries). If you look higher and higher up in companies the management are typically the people who have shorter tenures at places.

I was laid off 2 years ago in the healthcare industry (which is so chronically understaffed I thought I'd always be immune to layoffs) at the busiest job of my life. Again, some management decision to combine services from 2 hospitals into 1 (mine) to save some money, and I had the least seniority. I had to train the people from the other location to come take over my job. I hear that the combined dept is so overworked right now its affecting patient care, but at least they shaved an extra $200k off the books by eliminating my position!

samwalton

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Re: 41 year old Bay area resident - When is the earliest I be FI?
« Reply #35 on: May 11, 2018, 09:56:16 AM »
I think everyone else here has done a great job of picking apart your expenses, and giving you general lifestyle advice. Continue to read, try to get your wife to read up on it too, and really have a discussion. Small town midwest <------------|----------------|------------------|---------------> Bay area. I think you could be happy living anywhere beyond the 25% most ideologically similar areas to where you grew up. I moved from the great utopia of the PNW to a college town in the midwest and have shaved my working years from 20+ to 8. There's nowhere worth living if you can't truly live. Your expenses tell me that you're paying to simplify everything (meals out etc) because you lack time. Your children have a finite time at home and you have a finite time on this planet. Capitalize off that while you can.

I also want to point out a logistical fallacy you subscribe to. "We both work in the Bay area at big companies therefore we will never be laid off".

My BIL works in your same industry likely. He is at the level you are (if not higher based on salaries). He was laid off when some new bigwig came in and de-funded his entire department. Never discount shareholders coming in, companies rebalancing the books, some VP getting a hair brained idea. Just because a company is profitable doesn't mean it won't ever make a REALLY STUPID decision and lay you off. Companies look more profitable when they cut the fat (those $300k option / bonused salaries). If you look higher and higher up in companies the management are typically the people who have shorter tenures at places.

I was laid off 2 years ago in the healthcare industry (which is so chronically understaffed I thought I'd always be immune to layoffs) at the busiest job of my life. Again, some management decision to combine services from 2 hospitals into 1 (mine) to save some money, and I had the least seniority. I had to train the people from the other location to come take over my job. I hear that the combined dept is so overworked right now its affecting patient care, but at least they shaved an extra $200k off the books by eliminating my position!

Thanks Fuzzy math, sorry to hear about your layoff. I'm sure you've landed in a better spot given your portable skills in healthcare! Yes, you hit the nail on the head. A large part of our expenses is due to the fact that we are paying for convenience due to lack of time. I am getting DW up to speed on this and we are having some great discussion at this point, including tracking out expenses at a more detailed level and larger discussions of whether it makes sense to continue to live here. I am under no illusion that our jobs are "safe", but we've always rationalized that we can sell off the rental if the worst happens. However, as someone pointed out earlier that might not be the best time to sell, so we definitely need to rebalance from a position of strength.