Author Topic: You only YOLO once?  (Read 2413 times)

DuderhamLincoln

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You only YOLO once?
« on: March 15, 2017, 12:08:03 PM »

Question: My wife and I would like to resign a year from now (4/2018), travel in our RV for a year or two then settle into enjoyable hobbyjobs.  Is this a reality or financially irresponsible. 

Most figures are monthly.

Life Situation: Married Filing Separate, no dependents 38 and 35 yrs old.  I work part time, she is full time.

Gross Salary: $11,200

Pretax Deductions:
Health, Dental, Vision, Ins $765
HSA $325
Retirements $1,715

Rental Income $900 (net income after all expenses and taxes)

AGI $9,300

Taxes: $3,000

Expenses
Life, P&C, Umbrella, Auto Insurance $285
Utilities/Internet $215
Cell phones $88
Grocery $550
Gas $120
Loan on Land $493
Property taxes $250
Misc $1,200 (this is our usual credit card bill, I would like to break it out, but it is a different cost driver each month, includes travel, entertainment, frivolous purchases, cabin building funds, and anything not falling above)



Assets:
Home $105,000
Rental 1 $140,000
Rental 2 $125,000
Timber Land $80,000
Personal Items $30,000 (Cars, Tools, Machinery, Bikes etc.)
Cash on Hand $75,000
Retirement Plans $258,000
HSA $9,500
Bonds $11,000

Liabilities
Rental 1 -$91,480 30 yr fixed 5% P:$135 I $381 ~26 yrs remain
Rental 2 -$70,700 30 yr fixed 4.375% P$109 I $257 ~ 25 yrs remain
Timberland -$36,000 10 yr fixed 4.3%  7 years remain

We have a $50,000 line of credit on our home with zero balance.  I'm about 25% through building a small cabin on the timberland, which has been a lifelong ambition.  It will likely become a home base for us post FE.  Our primary residence has a market rental value of about $1000 per mo, after expenses it would net around $600 additional monthly income. I think our gross hobbyjob income would be around $50,000 post travel.

So what do you think, can we do this in a year, should we work longer?  How much longer?







Laura33

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Re: You only YOLO once?
« Reply #1 on: March 16, 2017, 02:24:38 PM »
So, I think this is largely just doing math.  What are your expenses going to be after your trip?  Will you post-RE income cover it?  If not, are your savings sufficient to cover the delta?

From your list here, it looks like you have around $4600/mo in living expenses.  That may change after you semi-RE -- e.g., your current medical insurance might go up or down. eating out may go down and groceries may go up (or down, if you manage them carefully).  Since right now a whole bunch of costs are sort of hidden under the umbrella of the CC bill, we can't really figure that out for you.  Also, what will your housing expenses be if you are living in the cabin -- I assume no additional mortgage, but what about property taxes, utilities, etc.? 

On the income side, it sounds like you are assuming that you will bring in about $50K, plus you have some positive cashflow from the rentals on the order of $18K/yr, assuming the assumptions are accurate.  So if your living expenses stay the same, you bring in the rental and job income you expect, you may be ok, depending on your tax situation, and as long as you are comfortable not saving much of anything.

So, next, how are you going to buy the RV and fund that year or two?  Just the $75k in cash and @$1500/mo net from the rentals?  Can you/will you want to work some from the road?  And if you plan to live in the cabin, how/when are you going to get that finished?  And with what money?  Will you need to come back to your current house for a year or two before you can complete that and move in?  If so, that will cut $600/mo from your future income for that period.  Etc. 

My primary suggestion to you is that you need to get a handle on all of your expenses, including that giant "miscellaneous" category.  Not because it will help you plan your RE budget (though, yeah, that's important too) -- because if you are going to plan to live for decades on less than half of what you currently bring in, you will need to get used to living on a budget to make sure that your expenses stay within that reduced income.  When your income far exceeds your expenses, you have a huge buffer, so you can get sloppy here or there, have a bad month without noticing, etc.  You can't afford that in your post-travel world.  So practice that for the next year -- track everything religiously, figure how much you're really spending over the course of a year on these various categories.  This is as much a test of whether you can live with the *habits* you will need to succeed as it is a test of whether you can manage on the reduced income.
Laugh while you can, monkey-boy

AMandM

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Re: You only YOLO once?
« Reply #2 on: March 16, 2017, 06:22:18 PM »
Sometimes I think we should just have Laura answer every question on the forum.

RidetheRain

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Re: You only YOLO once?
« Reply #3 on: March 17, 2017, 11:46:37 AM »
+1 to Laura's comment.

If your numbers work out they will be fine, but that miscellaneous could mean you're completely fine or it's a recipe for disaster. You'll look around the forum here and notice that the most secure people know what they spend. You're trying to get answers without doing the work. Find your statements for the past few months (a year is best, but start small) and divvy out that spending. Divide big expenses out as if you were saving for them all year to spend during one month. For example, I pay my car insurance twice a year and it costs about $850 each time. So in my budget, I say I spend $140 on insurance each month. This gives a clear understanding of how much it costs me monthly even if I don't spend it. That is what we want to see here so that we can understand your spending habits.

The reason we are concerned is what if you have several months of really high spending without a reduction in other months? Suddenly you're thousands of dollars over budget! I'd try to keep the mystery category under 5% of your total budget.

EDIT: your and you're. It's like I don't know the difference!
« Last Edit: March 17, 2017, 11:48:46 AM by RidetheRain »

DuderhamLincoln

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Re: You only YOLO once?
« Reply #4 on: March 17, 2017, 12:06:16 PM »
Thank you for taking the time to respond to my post Laura.  You've brought up some interesting thinking points.

My tax burden for the land will double from about $600 annually to $1,200.  Property Tax on my primary residence which I'm now paying out of pocket will get rolled into that $600/mo net gain once it becomes a rental. 

Living expenses at the cabin will be less on the utility side.  I am physically building the cabin myself.  I recently went to part time at work so I can finish it this summer.  There won't be an additional mortgage. 

The credit card bill is almost entirely discretionary.  For example this month I ordered materials to build a deck onto our house and tickets to the NCAA basketball tournament.  Last month was plane tickets to visit family, new shoes and solar panels for the cabin. I tend to spread out larger purchases on it month to month to even out the cash flow.  Very difficult to put into categories, but I would say we can cut it down to around 2-300 if we need to.

I had intended to use about half the cash on hand to buy another investment property, but the market has heated up and I am not able to find the returns that would make me buy.  So it's kinda just sitting there.  It will probably grow to around $90,000 by this time next year.  I'll divert the rest of our excess  savings rate towards materials for finishing the cabin.  It's very small, around 450 sq ft.  I buy enough materials to work for each trip I make to the cabin.

Cash flow from the rentals already in operation is only $900/mo however this is a good conservative number.  I set aside capex, maintenance funds each month regardless of what actually occurs.  I'm comfortable here because I've been in the landlording game for some time.  900 would grow to 1,500 once we add our house to the mix.

I failed to mention we already own our Camper, it's worth $16,500 and could be liquid fast at that value.  I should probably list that under assets.

I think we need to probably work and save at least 2 more years then see where we stand.   I'd feel better if I could pick up another duplex or apartment building or two.   

My best take at post retirement expenses while we travel if we did it today:

Health Dental Vision $900 (got an estimate)
P&C $160
Groceries $550
Gas $200
Land $493
Miscelaneous $300
Property tax $100
Campsite fees $300
Phones $88
Income tax $195 (Do I have to pay capital gains regardless of my income level?)

Total expenses $3,400
Income $1,500

So I need around $2,000 a month more in passive income huh.  Depressing, but good to know.  I can buy myself more monthly income with my cash on hand, but not enough.



« Last Edit: March 17, 2017, 01:08:22 PM by DuderhamLincoln »

Laura33

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Re: You only YOLO once?
« Reply #5 on: March 17, 2017, 07:11:16 PM »
FWIW, that's good info, and I think a two-year plan will serve you in good stead.  The only thing I would challenge is your assumption that you could cut the CC to $200-300/mo if you needed to:  the only way to actually know that is to live it.

I am saying this from direct personal experience:  I have had a OMY mentality for a number of years, but NOT in the RE sense:  I keep thinking that each year I have some special "extra" one-time expense, but that that is an exception, and that next year things will return to my mental picture of what I think we should be spending.  But as Roseanne Roseannadanna used to say, it's always something.  The reality is, you get used to having the extra income, and so you get used to thinking that, well, might as well do this extra thing, you can afford it, it's just this one time, and then it'll be done.  But let me tell you, looking back now, I have had 13 solid years of "somethings" -- and now it's almost a (bad) habit, an expectation that we have extra $ to do "stuff."  Because, of course, we do - but that interferes with the RE plans and means both that I don't save as much as I think I can AND that I am far too used to having that fire hose of cash gushing.  So, personally, I am not going to RE until I actually and fully live that life and that budget for a year or two, so that I am 100% confident that I am not blowing smoke up my own ass about whether I am truly "ready" to RE on my planned budget..

Which brings me back to:  track everything.  Categorize -- sure, carve out the cabin build, because you likely won't do that more than once (but do leave budget room for upgrades and stuff you don't get done immediately).  Make sure you really feel comfortable living on the post-RE-not-counting-cabin budget.  Pass that test, and you can go into this with some confidence in yourselves and your plan (instead of trusting random internet strangers to tell you you're ok).  ;-)
Laugh while you can, monkey-boy

frugal_c

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Re: You only YOLO once?
« Reply #6 on: March 18, 2017, 09:20:19 AM »
Hey as you say YOLO.   Seen enough people get diagnosed with diseases to realize what YOLO really means.  If you are okay with the hobbyjobs then I say go for it.
« Last Edit: March 18, 2017, 01:27:51 PM by frugal_c »

AMandM

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Re: You only YOLO once?
« Reply #7 on: March 22, 2017, 12:41:13 PM »
Sometimes I think we should just have Laura answer every question on the forum.

Rereading this, it cam across as grumpy and hostile.  I didn't mean it that way at all! It was meant as a +1000 to all Laura's posts, and I'm really sorry if I was unclear!

Laura33

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Re: You only YOLO once?
« Reply #8 on: March 22, 2017, 07:54:57 PM »
Sometimes I think we should just have Laura answer every question on the forum.

Rereading this, it cam across as grumpy and hostile.  I didn't mean it that way at all! It was meant as a +1000 to all Laura's posts, and I'm really sorry if I was unclear!

:-). Thanks!  (And both the original post and this one came on a crappy day, too, so your timing is awesome)
Laugh while you can, monkey-boy