Author Topic: Introduction (hi!) and my MMM situation (comments appreciated)  (Read 5809 times)

k290

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Hello Mustachians :)

First post here and just wanted to leave an intro thread.

I have been a long time dreamer (seeker) as far as early retirement goes. Fortunately I was brought up in a household where money was never wasted on 'wants', and credit was a no-no. After leaving university I took that to the next level, as after leaving my first job, and starting my second at the best company to work for in my country, I realised that if this is the best then it's not that great.

Every morning that I wake up I smell the fresh air and think about how 9 out of 12 hours of this beautiful day I'm cramped up in an office. So I'm aiming for FI, ASAP.

I have converted these numbers into US$ since most users here I guess are from the US. If anything seems unrealistic, remember I'm in a different country where cost of living is different.

I left university with a post-grad and have been working for just over a year.
At my first job which I hated my monthly cost to company was about $1500. After 8 months I left because I hated it.
I started a new career path. My current cost to company is about $2100. Here is where the money goes:

  • $315 goes into a pension. This is paid before tax and is the maximum I can put in. Any interest earned is tax free. It is a company set up thing, and the closest equivalent in the US would be a 501k I guess but the employer doesn't match it. I have no choice in the fund it goes into. It is earning around 7%. Inflation in my country is about 6%. I don't really know what other retirement fund options I have in this country but am slowly researching it
  • $200 goes straight to the tax man
  • $200 goes to my medical aid/medical insurance (not sure of the terminology in the US). Briefly put, this covers me for visits to the doctor, dentist and optometrist a couple times a year. Generally I haven't paid anything more medical related
  • $200 goes to rent. I have a sweet deal, living in a small apartment owned by my godparents. The rent has never gone up and if I left, the lowest I would expect to pay is about $400. I've used several online calculators and as long as I invest (at 10%) what I'm saving by renting instead of mortgaging, the compound interest will outgrow whatever my net worth would have been by mortgaging. Very rare for this to be the case. Awesome situation!!
  • $100 goes to gas for my car. I don't pay insurance on it yet as my dad is still paying it. That will change on my 25th birthday when insurance rates will drop due to my age
  • $130 goes to groceries, and eating out with friends, lunch at work etc (I make my own lunch 3/5 times per week).I don't pay for dinners though because my dad cooks for both of us for the week on Sunday nights I really need to reduce the expenditure on eating out.
  • 12$ goes to 2GB of internet data per month for my laptop and airtime for my mobile phone
  • Around $900 is what is left which goes into personal unit trusts every month. This I is likely to earn me 10% and compound nicely. (Note: inflation is 6%). Its mostly in a high equity fund, but I'm planning on moving some to a fund that is mostly property trusts which should also get me around 10% to hedge my risk, since property stocks tend to hold or do ok when the rest of the stock market goes down and vice versa.

I will need about $600,000 for FI and live off the interest, using the 4% rule, and keep living the way I do. T I have about 20,000$ in the unit trust so far, and another 500$ locked into a fixed deposit for about another year. I tend to not take into account that pension fund because that I can only access when I am at least 55 years old.

I am 25 now and I will thus be able to gain FI between 35 and 40 by some simple calculations.

This is assuming I don't get an annual salary increase (but I think I can rely on 7% per annum).

This is also assuming I don't have much higher expenses in the future. I have taken into account the fact that I will soon need to pay car insurance, but my gas price will be lower as I will be trading in and getting a more fuel efficient car. My grocery prices may increase as I rely less on my dad, but I would expect that to only happen in a few years. I am out of the dating game as every girl I've dated since my ex hasn't been stacking up/working out, so that is also an unlikely expense. I cannot own pets in my current apartment so no expenses there.

That's the end of my MMM situation. Quite a long tale but anyway, feel free to comment.

(PS I'm from South Africa.)

« Last Edit: March 03, 2015, 10:57:32 AM by k290 »

nereo

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #1 on: March 03, 2015, 10:54:51 AM »
Just wanted to say "welcome"

It sounds like you have started our on the right path.  You are already saving and investing, and have a goal of being FI by your mid 30s. 
My only recommendations are to continuously 'optimize' your life so that you are only spending money on things that improve your life, and not wasting money (which is fantastically easy to do). 

Keeping posting
N

k290

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #2 on: March 04, 2015, 01:39:18 AM »
Just wanted to say "welcome"

It sounds like you have started our on the right path.  You are already saving and investing, and have a goal of being FI by your mid 30s. 
My only recommendations are to continuously 'optimize' your life so that you are only spending money on things that improve your life, and not wasting money (which is fantastically easy to do). 

Keeping posting
N

Appreciated the welcome and recommendation!

kvaruni

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #3 on: March 04, 2015, 06:01:29 AM »
It definitely looks like you have most things covered:
  • it is annoying that you don't have an opt-out for pension, but it sounds like that is just how it is
  • tax is unavoidable, so don't worry about it
  • medical seems steep; however, I assume that your cover is for private insurance and public care isn't nearly that good? You might have to look into a higher premium, but this is a decision only you can make
  • housing is amazing, nothing to be optimised here :)
  • gas for a car seems wasteful to me. Is it impossible to walk/bike?
  • for groceries, you really need to split it up. How much is going to groceries? How much to eating out? Are you taking pre-packaged lunches or making them yourself? If groceries are like 80% of the cost I think this is very reasonable. If 80% is going to eating out, well, you know where you can cut some more :)
  • data seems very reasonable, I wouldn't worry about it
Overall, you are doing really well, especially given your young age. Do read up some more on equities/properties though. Property is often hailed as a safe choice that offers good risk protection, but it rarely is the case. In fact, property has a tendency to be heavily correlated with equities in bad times (both falling hard), and only somewhat correlated in good times (equities tend to recover better, but not always).

k290

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #4 on: March 04, 2015, 10:00:54 AM »
It definitely looks like you have most things covered:
  • it is annoying that you don't have an opt-out for pension, but it sounds like that is just how it is
  • tax is unavoidable, so don't worry about it
  • medical seems steep; however, I assume that your cover is for private insurance and public care isn't nearly that good? You might have to look into a higher premium, but this is a decision only you can make
  • housing is amazing, nothing to be optimised here :)
  • gas for a car seems wasteful to me. Is it impossible to walk/bike?
  • for groceries, you really need to split it up. How much is going to groceries? How much to eating out? Are you taking pre-packaged lunches or making them yourself? If groceries are like 80% of the cost I think this is very reasonable. If 80% is going to eating out, well, you know where you can cut some more :)
  • data seems very reasonable, I wouldn't worry about it
Overall, you are doing really well, especially given your young age. Do read up some more on equities/properties though. Property is often hailed as a safe choice that offers good risk protection, but it rarely is the case. In fact, property has a tendency to be heavily correlated with equities in bad times (both falling hard), and only somewhat correlated in good times (equities tend to recover better, but not always).

I appreciate you reading my expenditure!
  • It is private medical cover. In South Africa public care might as well be no care at all.
  • 100% agree with your point on the groceries.  I have been making a conscious effort to reduce on spur of the moment food purchases but I haven't been consistent. My eating out is quite a lot too...

Your statement about property spurred me to read further. I think my statement was kind of correct about the lack of correlation between property and equity, at least in my country. However, I was looking to put 50% of my portfolio into a property fund. From what I've read I should be looking more on the lines of 10-20%.
 
Quote
The correlations between listed property and equities have been falling consistently, since 2005 to 2006 and in fact, the two asset classes are now almost uncorrelated.  That means that adding listed property to a balanced portfolio does a far better job of diversifying the risks than say, going into offshore equities where the correlations with South African equities have been rising for the last five or six years.
Which comes from http://www.biznews.com/sa-investing/2015/02/05/ian-anderson-another-10-yield-year-in-prospect-for-property/
But I need to read up some more from other authors and figure out why/when/how it would actually be correlated. I mean the above is just one guy.
« Last Edit: March 04, 2015, 11:27:39 AM by k290 »

Retire-Canada

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #5 on: March 04, 2015, 10:35:48 AM »

Every morning that I wake up I smell the fresh air and think about how 9 out of 12 hours of this beautiful day I'm cramped up in an office. So I'm aiming for FI, ASAP.

Welcome and congrats for getting started on your way towards being FIREd. :)

I just wanted to throw out another idea for you to consider. Instead of working up to 12hrs/day to save/invest your FIRE nest egg you could save/invest say 70% of that number and the switch to part-time work so you can enjoy yourself more.

70% of your target will grow to 100% in 5.3yrs [7% growth adjusted for inflation] without you having to save/invest an extra $1.

Nothing wrong with working full-time until reaching FI, but also good to know that isn't the only option.

-- Vik

nereo

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #6 on: March 04, 2015, 12:28:00 PM »
... you could save/invest say 70% of that number and the switch to part-time work so you can enjoy yourself more.

70% of your target will grow to 100% in 5.3yrs [7% growth adjusted for inflation] without you having to save/invest an extra $1.

Nothing wrong with working full-time until reaching FI, but also good to know that isn't the only option.
That's a really awesome way of putting it, thanks! 
I've always been keen to note that once you pass a certain point, market gains can vastly overshadow contributions, but your take on gives a slightly different perspective. 


kvaruni

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #7 on: March 05, 2015, 12:33:02 AM »
Quote
The correlations between listed property and equities have been falling consistently, since 2005 to 2006 and in fact, the two asset classes are now almost uncorrelated.  That means that adding listed property to a balanced portfolio does a far better job of diversifying the risks than say, going into offshore equities where the correlations with South African equities have been rising for the last five or six years.
Which comes from http://www.biznews.com/sa-investing/2015/02/05/ian-anderson-another-10-yield-year-in-prospect-for-property/
But I need to read up some more from other authors and figure out why/when/how it would actually be correlated. I mean the above is just one guy.

Have a look at this paper: http://iscebs-austin.clubwebsource.com/newsletters/The%20Volatility%20of%20Correlation.pdf , especially Table 3. The paper aggregates results since 1970 and that particular table shows you how much the correlation typically swings between asset classes. The problem is that the correlation between equities and property is just all over the place. Just wanted you to be aware of it, as I got burned myself after believing that natural resources would protect me from the 2006 crash :). That being said, 10-20% is a healthy choice. It might just give you a portfolio that is better than equities+bonds, as long as you are aware of and willing to accept the extra risk.

lostamonkey

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #8 on: March 05, 2015, 06:11:13 AM »
I am not sure if I read your post right but if your annualized return is 7% and inflation is 6%, the 4% rule will not apply to you. If these numbers are true you will need a much larger Stache as your SWR will be much lower. Your real return on your investments is only 1%.

k290

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #9 on: March 05, 2015, 12:27:47 PM »
I am not sure if I read your post right but if your annualized return is 7% and inflation is 6%, the 4% rule will not apply to you. If these numbers are true you will need a much larger Stache as your SWR will be much lower. Your real return on your investments is only 1%.

7% was the company pension fund. Further down I mention my unit trusts which will get me at the very least 10%
« Last Edit: March 05, 2015, 12:31:32 PM by k290 »

k290

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #10 on: March 05, 2015, 12:29:45 PM »
Have a look at this paper: http://iscebs-austin.clubwebsource.com/newsletters/The%20Volatility%20of%20Correlation.pdf , especially Table 3. The paper aggregates results since 1970 and that particular table shows you how much the correlation typically swings between asset classes. The problem is that the correlation between equities and property is just all over the place. Just wanted you to be aware of it, as I got burned myself after believing that natural resources would protect me from the 2006 crash :). That being said, 10-20% is a healthy choice. It might just give you a portfolio that is better than equities+bonds, as long as you are aware of and willing to accept the extra risk.

Thanks for the link. Interesting stuff and definitely gives me a better perspective

patrickza

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #11 on: April 18, 2015, 04:56:05 PM »
Another South African here! Your numbers look reasonably fine, and I think you're definitely doing the right thing renting instead of buying in this country.

I imagine you're on a regular medical aid. Have you considered a hospital plan? Being young and healthy means it's usually more cost effective to pay the doctors out of your pocket. In fact with most medical aids here paying them out of the medical savings account, you end up doing that anyway.

Great that you're getting started so young!

MrsPete

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Re: Introduction (hi!) and my MMM situation (comments appreciated)
« Reply #12 on: April 18, 2015, 05:35:26 PM »
You're off to a good start.  Your greatest strength is that you're starting to save from a young age.  Don't become discouraged when you look at the size of your goals and the small amounts in your accounts; it'll take time before you can see real progress, but you've done the most important thing by taking the first steps. 

Things I'd say concerning your details: 

- You have a good deal on rent right now, but you're getting this deal because your kind godparents are supplementing you.  They're accepting less rent than they would collect from a stranger, and this isn't something that can go on indefinitely.  At some point something will prompt you towards a different (and more expensive choice); it might be marriage, it might be that they need the higher income for their own retirement, or whatever.  By saving NOW, you'll be prepared when that time comes.

- Ditto on not needing dinner because your dad cooks every Sunday night (I'm imagining he does a massive cook/grill, and then y'all eat from it all week?).  You're keeping your costs low because he is supplementing you.  You're a working adult, and you should begin contributing to this cost:  Perhaps ask him what he intends to cook next Sunday, and offer to pick up steaks or chops towards that meal. 

- Eating out is an easy thing to work on.  I hate making lunches before work, so I do it on Sunday afternoons, and I take a week's worth of lunches with me on Monday.  I also like making up big pots of soups and chilis, and I freeze the leftovers in individual ziplock baggies.  Making double of a casserole, then freezing half is a great way to "work once, eat twice". 

- Your medical seems high for a young, healthy person (but it also could be the difference between countries).  Do you have the option to go with a high-deductible plan?  In America, that'd be a plan that costs little ... but also doesn't pay for moderate costs like a doctor visit for an ear infection, nor did it pay for eye glasses ... but does pay if you have a BIG problem like a car accident.  We had one for years, and it was worthwhile; we "won" for about 12 years 'til my husband had a hospital stay and came out with an ongoing medical issue.  We "lost" that year, and we realized it was time for us to switch back to a traditional plan.  Still, it was a huge money saver for a while.