Author Topic: Case Study: If I Only Believed Then The Truth I Know Now  (Read 5655 times)

Willbrewer

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Case Study: If I Only Believed Then The Truth I Know Now
« on: March 17, 2014, 05:46:47 PM »
First, my thanks to this community for the education and inspiration. Thanks! If I had believed and applied all the common sense investment advice I heard in my youth, and lived the MMM lifestyle starting in my 20's or even 30's I wouldn't be writing this post. Oh well, it is what it is.

I am getting a late start in reaching my FI goal. I've always known I should save, and have had 401k accounts and even a small retirement account that I cashed out whenever I changed jobs. Big mistake, because that money, if I just left it, would have gave me my independence by now. Oh well. I'm not bitter. Just a little disappointed in myself. But I have had a good roll so far. I've enjoyed the last 3 years traveling around the country with my travel trailer, coast to coast, gulf to I-90. It was worth it, even if it wasn't the most Mustachian thing to do.

I have 10 years until I can start receiving full Social Security payments (at 66-1/2). I have a relatively meager amount of money in an IRA account, some cash, a Health Savings account and an individual investment account. However, in order to me to be able to quit working at 66.5, my investment holdings must increase by $360k. Here's my situation and plan. Criticism, tips and face punches encouraged... if warranted.


And just to let you know, the job I've accounted income for isn't mine yet, but I think it's a sure deal. If you don't want to waste the time or energy figuring out a financial situation for my "potential-but-almost-a-sure-thing" earnings, you can stop reading now. I understand.

Living Accommodations/Monthly Expenses-
---------------------
$0.00- 2011 Travel Trailer - paid off
$455- lot rent
$15-   insurance/registration ($115 annual insurance/ $65 annual registration)
$35-  electricity (averaged on the high side)
$20-   TT maintenance/repair(I can fix anything myself, so repairs would be material cost only)
-----
$525- Total Monthly Housing ($6300 annual)


Vehicle Expenses- Annual
--------------------
$0.00- 2011 Ram Pickup - paid off
$1080- insurance/registration
$300- maintenance
$1200- fuel(amount = 5000 miles @ $3.50 per gallon @ ~ 15mpg-- or $0.25 fuel cost per mile)
--------------
$2580- Total Annual Vehicle Expense
or
$215- monthly vehicle expense
or
$115- monthly vehicle expense PLUS $0.25 per mile driven(fuel cost)


Other Expenses- Monthly
-----------------
$210- Health and Long Term Care Ins. Premiums
$250- Health Ins. Deductible ($3k to have on hand if needed, invested in HSA account)
$90- cell phone($30 monthly) and internet($60 per month, locked in for two years)
$90- 10x10 storage unit (I know, I know- too much shit- I'm in the process of a great sell-off)
$200- food/misc grocery store stuff (estimated high, but I entertain and get drunk occassionally)
$10- clothing (I'm set with shoes/clothes for at least a year)
$25- fun/hobbies (maybe extra drinking money, if needed)
$15- laundry (could wash in a bucket and dry on a line for $0, but I don't think I will)
$20- propane for cooking
-------------
$910 -- Total Other per Month

Total of all expenses
=========
$525+$215+$910= $1685 (assuming 5000 miles driven-I bike a lot so could be less)


Now, for the positive side:

~Annual Income, after taxes-
$12k- business income
$32k- job income (the potential job I mentioned above)
--------
$44,000 net annual
or
$3,650 net monthly


Investments:
$13.3k standard IRA account investments
$3.8k individual investment account
$15k cash in bank
$100k share of co-owned vacant property (listed for sale, but might take forever to find a buyer)
$20k- small pot of gold and silver

Debt:
---
None


Available Credit if needed:
---
$4k LOC
$15k CC
$4k Lowes, Home Depot credit

Credit score:
~800
============

So, that's about it. This is my future as I see it.

Currently Invested:
$17k (not counting cash on hand, precious metals here- emergency/hedge stash)
        (if/when property sells, I will invest total and redetermine FI date)

Monthly Contribution to IRA, 401k, HSA, and Individual Brokerage Account:
$1985

Plugged into Calculator:
$17k + $1985 monthly addition @ 8% annual return = $400k in 10 years.

A 4% SWR = $16k per year

Social Security will be ~ $2k per month, $24k per year

$40k per year will be living high on the hog for me, so if my calcs are on the money (ha ha) I will be OK.

But....

I would also like to buy a small acreage- more than 2, less than 10- that might have an existing mobile home or fixer upper house in place, or will be completely vacant, in which case I will build a "Tiny House" for myself, or to possibly rent while I live in my TT on the property. To buy the property I guess I could buy with a cash down payment, then use the $455 monthly lot rent as payments. Or I could use funds from the property sale, whenever that happens, and buy it with cash.

Actually, I think it would be cool to create a "Tiny Farm" enclave, with three or four small houses, each on a couple of acres that could be rented out to Tiny Minded Mustachians. And by Tiny Minded, I mean people with an awareness of creating a tiny footprint, using tiny amounts of resources, spending a tiny amount of money, etc. It's a good kind of Tiny Minded, not the bad kind.

And just so you know, I plan to live in my TT for as long as I can, but need to think about the day I'll be less physically able to care for myself. I might be better off in a stick house someday before I get stuck in the rest home. LOL. But I've got that covered with my LTC insurance. That's one of the smart moves I made, hanging on to a company LTC plan. It's $75 per month now, and only rises if I agree to the higher coverage. Currently it will cover something like 5 years or $500k rest home costs. Hopefully I'll just fall dead while riding my bike (or something more fun) someday and not end up using it, but the quick exit doesn't always happen.

OK, that's my story. Any thoughts?

arebelspy

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #1 on: March 18, 2014, 07:06:29 AM »
All your math looks right to me, assuming your expenses are accurately tracked and averaged over a long enough time period.  You should probably count some depreciation in your travel trailer and truck (both of which, while only 3 years old now, will be 13+ years old and aging when you retire).

I'm sure you'll get some tips on reducing expenses (cell/internet and storage unit, at the very least), but other Mustachians will likely come along to help with that - reducing expenses isn't something that interests me personally.  Don't forget to make/keep room in your entertainment budget for the Puyallup fair every year!  ;)

I see no numbers around the potential "buy a plot of land" plan. You seem to have meticulously counted everything else, but don't have any numbers for that.  I'd work on that, then you can figure out what that alternative plan would look like in terms of stache needed to fund/living expenses under that plan/income under the (smaller?) stache/etc.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

MissStache

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #2 on: March 18, 2014, 07:33:44 AM »
Just stopping in to say that your Tiny Farm enclave sounds awesome, and I would be totally right there with you if you didn't live in Washington (I don't know how y'all can sleep at night with the ocean on the wrong side!).  I hope you make that happen, because I'd love to follow the adventures!

(And get rid of the storage unit, of course!)

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #3 on: March 18, 2014, 01:01:41 PM »
Thanks, arebelspy for your comments, which I will re-comment to. :)
All your math looks right to me, assuming your expenses are accurately tracked and averaged over a long enough time period.  You should probably count some depreciation in your travel trailer and truck (both of which, while only 3 years old now, will be 13+ years old and aging when you retire).

----------------
I'm strongly considering selling the truck once I get the job and park my TT in a long-term spot. My biggest hope is that I can park it within a few miles of the work location so I can bike and/or walk to and from the job. Selling the truck (and gaining 20K or so to invest) would be a no brainer in that circumstance. And even if I had to park it  driving distance from work, I could sell, buy an efficient beater car, and either borrow or rent a truck if I had to move camp.

As far as the TT depreciation goes, I'm not sure how I'd figure that in. I could potentially get 20 years of use out of the $17k cost of the trailer, or a cost of $850 per year ownership expense, plus $420 per year maint/ins/regsrtn. That comes to just over $100 per month, not including utility or lot fees. Probably much less that what only the maintenance/repair costs would be of all you stick-home owners. LOL  However, there's no equity in my pocket either. At end of life the TT would probably be worth only a few grand.
---------------

I'm sure you'll get some tips on reducing expenses (cell/internet and storage unit, at the very least), but other Mustachians will likely come along to help with that - reducing expenses isn't something that interests me personally.  Don't forget to make/keep room in your entertainment budget for the Puyallup fair every year!  ;)

-------------
Cell phone would be an easy change. I have a Consumer Cellular plan, 500 minutes, 500 txts for $30 a month. From what I've read here in the forum I could probably cut that to something closer to $10 a month. I could bite the bullet on the Verizon MIFI I just set myself up with, paying the hefty early-quit plan fee and going with free WIFI, but I don't feel comfortable with public internet access. No way I'd work with my bank accounts or investment accounts in a public access situation. I'm sure I could find a cheaper plan with a lower max gig amount than I'm using now (4 to 6 gigs per month) by doing all non-secure computing at the laundromat for free. I could probably get by on 2 gigs easily for my secure shit, so I'll look at the long-term cost/benefit options of shutting down Verizon and finding something cheaper.
-------------

I see no numbers around the potential "buy a plot of land" plan. You seem to have meticulously counted everything else, but don't have any numbers for that.  I'd work on that, then you can figure out what that alternative plan would look like in terms of stache needed to fund/living expenses under that plan/income under the (smaller?) stache/etc.

-----------------
Yes, that's something I'm still figuring out. Once I get established at the job I'm sure I'd have no problem getting a loan if that's the route I decided to take. And I would probably be in a better financial situation having a lower interest debt on my hands, compared to losing the potential higher interest/returns I'd get on my investments with that money if I saved (or used the vacant land proceeds when it sells) and bought with cash.

I'm almost positive I want to buy the land and build a small domicile for myself, but at the price I'd pay for it I'd most likely have an auto commute to deal with. Hmmmmm.

And the Puyallup Fair? I might go again, but the damn event is all about taking money out of your pockets with all the fanfare and hoopla (psychological pick-pocketry?) Been there, done that, don't need it. Unless I brew up a few batches of prize-winning quality ales or lagers (done that before!) with my son and we enter them in the homebrew competition. I would go then, because I think you get a couple of free tickets when you enter the beer competition. ;)


arebelspy

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #4 on: March 18, 2014, 01:09:46 PM »
As far as the TT depreciation goes, I'm not sure how I'd figure that in. I could potentially get 20 years of use out of the $17k cost of the trailer, or a cost of $850 per year ownership expense, plus $420 per year maint/ins/regsrtn. That comes to just over $100 per month, not including utility or lot fees. Probably much less that what only the maintenance/repair costs would be of all you stick-home owners. LOL  However, there's no equity in my pocket either. At end of life the TT would probably be worth only a few grand.

Yeah, basically annualize the cost of it over the lifespan, then set that amount aside every month (count it in your budget), such that you can replace it with a new one when the time comes.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #5 on: March 18, 2014, 01:10:59 PM »
Just stopping in to say that your Tiny Farm enclave sounds awesome, and I would be totally right there with you if you didn't live in Washington (I don't know how y'all can sleep at night with the ocean on the wrong side!).  I hope you make that happen, because I'd love to follow the adventures!

(And get rid of the storage unit, of course!)

MissStache, if the Tiny Farm project gets off the ground I'll be sure to let you know. And you know, this Left Coast ocean water does a lot towards maintaining the temperate climate we have over here. No summer cooling (AC) needed, and winters aren't as chilly as a lot of other places. Plenty of rain for the farm crops, too.

Storage w/b gone, of course. Would you happen need a nice KitchenAid mixer, with several attachments (even a grain mill!), perchance?  :)

MissStache

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #6 on: March 18, 2014, 01:17:14 PM »
Just stopping in to say that your Tiny Farm enclave sounds awesome, and I would be totally right there with you if you didn't live in Washington (I don't know how y'all can sleep at night with the ocean on the wrong side!).  I hope you make that happen, because I'd love to follow the adventures!

(And get rid of the storage unit, of course!)

MissStache, if the Tiny Farm project gets off the ground I'll be sure to let you know. And you know, this Left Coast ocean water does a lot towards maintaining the temperate climate we have over here. No summer cooling (AC) needed, and winters aren't as chilly as a lot of other places. Plenty of rain for the farm crops, too.

Storage w/b gone, of course. Would you happen need a nice KitchenAid mixer, with several attachments (even a grain mill!), perchance?  :)

I would normally make some pithy comment about the weather, but the fact that we've just been hit with our 7th or 8th bad snowstorm this winter has totally ground down my stoicism about our East Coast climate.  Oh, what I wouldn't give for some balmy temps.

If shipping across the country wasn't so expensive, I would be all over that.  Bet someone will take it off your hands on Craiglist for a nice amount!

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #7 on: March 18, 2014, 01:17:39 PM »
As far as the TT depreciation goes, I'm not sure how I'd figure that in. I could potentially get 20 years of use out of the $17k cost of the trailer, or a cost of $850 per year ownership expense, plus $420 per year maint/ins/regsrtn. That comes to just over $100 per month, not including utility or lot fees. Probably much less that what only the maintenance/repair costs would be of all you stick-home owners. LOL  However, there's no equity in my pocket either. At end of life the TT would probably be worth only a few grand.

Yeah, basically annualize the cost of it over the lifespan, then set that amount aside every month (count it in your budget), such that you can replace it with a new one when the time comes.

The more I think about it the more positive I am about doing the property/house purchase in the (hopefully) near future. That would make TT replacement a moot point, and I would only have to consider the costs of the new property.

By the way arebelspy, are there any useful calculators/planners that I could plug all this info into, that would make the planning a little less... scattered?

Thanks

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #8 on: March 18, 2014, 01:29:31 PM »
Just stopping in to say that your Tiny Farm enclave sounds awesome, and I would be totally right there with you if you didn't live in Washington (I don't know how y'all can sleep at night with the ocean on the wrong side!).  I hope you make that happen, because I'd love to follow the adventures!

(And get rid of the storage unit, of course!)

MissStache, if the Tiny Farm project gets off the ground I'll be sure to let you know. And you know, this Left Coast ocean water does a lot towards maintaining the temperate climate we have over here. No summer cooling (AC) needed, and winters aren't as chilly as a lot of other places. Plenty of rain for the farm crops, too.

Storage w/b gone, of course. Would you happen need a nice KitchenAid mixer, with several attachments (even a grain mill!), perchance?  :)

I would normally make some pithy comment about the weather, but the fact that we've just been hit with our 7th or 8th bad snowstorm this winter has totally ground down my stoicism about our East Coast climate.  Oh, what I wouldn't give for some balmy temps.

If shipping across the country wasn't so expensive, I would be all over that.  Bet someone will take it off your hands on Craiglist for a nice amount!

Yes, I know snow well, and I sympathise. Lived in Kansas for most my life, and a few years ago I decided that I'd had enough. The last three winters were spent down south, mostly in AZ. Very inexpensive living for an RVer (or even tent and car campers), and great weather in the winter. But my online business income has been drying up, so I decided to re-settle myself in the Great Northwest and get a J-O-B again. The NW because my sons both live near Seattle, and I lived here for 10 years or so in the past.

Yeah, CraigsList is going to be my go-to place for selling my 1000 cubic feet of past life anchors.

Milspecstache

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #9 on: March 18, 2014, 09:55:41 PM »
My payment on my small acreage is about the amount of your lot payment.  My vote is to do as you already suggested, and try buying a small lot.  That way your 'rent' becomes an investment.

Dicey

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #10 on: March 18, 2014, 10:43:27 PM »
Would you happen need a nice KitchenAid mixer, with several attachments (even a grain mill!), perchance?  :)

Since MissStache has passed, I'll nibble. Which model is it and what color? I've really taken up cooking and baking post-RE and I've never had anything but a (second)hand mixer. I'm toying with the idea of upgrading, but am not about to start paying retail now.

electriceagle

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #11 on: March 19, 2014, 06:52:07 AM »
Hi there,

You sound like a fun guy to be around. Everyone has an "if I'd been doing this right in my 20s" story. Don't feel bad.

Now down to business.

Good news: The $250/mo that you put into the HSA is savings (if you don't need it that year). You can increase your end invested net worth appropriately.

Better news: Your income looks low enough to take the retirement savers credit. The government will pay you to move some of that $15k from the savings account to a Roth IRA. You should take the government's money and do this before April 15th.

Congratulations on getting/having the long term care insurance. Insurance companies have realized that they miscalculated when issuing many of these policies and are now either raising premiums or not issuing new policies at all. Congratulations on getting that locked in.

Bad news: If it "might take forever to find a buyer", your share of the unoccupied property may not be worth 100k. You won't know how much it is worth until it sells.

I noticed that there's a pot o'gold at the end of your rainbow. People have things like this for security, but I don't see how it helps. If the zombie apocalypse comes, someone will take it from you, probably while you're moaning about braaaaiins. If you want diversification, buy either a world stock fund or land in an area that is good for gardening. You'll thank your lucky charms that you did. (I'll stop now.)

A few others have noted that your lot rent seems high for just a lot, and that you should probably buy your land sooner rather than later to turn that rent into a mortgage. I agree.

While you're doing this, I recommend that you figure out how much of the value of your rent is for the presence of utility and sewage hookups, how much is for location (prime location? not?) and how much is for land itself. When you go to buy your land, don't forget to add the cost of utility and sewage arrangements to the cost.

« Last Edit: March 19, 2014, 06:54:50 AM by electriceagle »

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #12 on: March 19, 2014, 11:17:31 AM »
Would you happen need a nice KitchenAid mixer, with several attachments (even a grain mill!), perchance?  :)

Since MissStache has passed, I'll nibble. Which model is it and what color? I've really taken up cooking and baking post-RE and I've never had anything but a (second)hand mixer. I'm toying with the idea of upgrading, but am not about to start paying retail now.

It's a white standard model, the one where the mixing bowl twist-locks into the base. And I hope I don't dissapoint you, but in rethinking my idea of buying real property and moving up to a somewhat larger living space, I'm feeling more inclined to keep it now.

I love to cook, and there's nothing like homemade bread made from freshly milled whole wheat flour. And there's the meat grinder / sausage stuffer aspect that would be nice to have and use again. It's probably a good money saving tool for me to hang on to.

I did take a look at the SF Craigslist, and saw Kitchenaids there for $50 and up. And if I do decide to sell it, you'll be the first to know. :)

Willbrewer

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Re: Case Study: If I Only Believed Then The Truth I Know Now
« Reply #13 on: March 19, 2014, 12:14:52 PM »
Hi there,

You sound like a fun guy to be around. Everyone has an "if I'd been doing this right in my 20s" story. Don't feel bad.

Now down to business.

Good news: The $250/mo that you put into the HSA is savings (if you don't need it that year). You can increase your end invested net worth appropriately.

Yes, I will put in at least enough to cover medical bills from year to year. But since the HSA investment options carry considerably higher expenses than my IRA/401k options, I should probably max them out first before I max out my HSA contributions.

Better news: Your income looks low enough to take the retirement savers credit. The government will pay you to move some of that $15k from the savings account to a Roth IRA. You should take the government's money and do this before April 15th.

Yeah, I'm pretty sure I'll get the savers credit for 2013. With the new job, I'm not so sure about 2014. But I am aware of the credit.

Congratulations on getting/having the long term care insurance. Insurance companies have realized that they miscalculated when issuing many of these policies and are now either raising premiums or not issuing new policies at all. Congratulations on getting that locked in.

Both of my grandmothers were in rest homes for a long time, and it was a terrible financial drain for my parents. The male side of my family tends to take the short exit ramp to eternity, but you never know.

Bad news: If it "might take forever to find a buyer", your share of the unoccupied property may not be worth 100k. You won't know how much it is worth until it sells.

I will consider that money a bonus. If/when it sells, the funds will put me just that much closer to FI.  The land is in a great area (just a couple of miles from the KC Speedway Nascar track) and that area is hopping with retail and commercial business. The land should appreciate over the years.

I noticed that there's a pot o'gold at the end of your rainbow. People have things like this for security, but I don't see how it helps. If the zombie apocalypse comes, someone will take it from you, probably while you're moaning about braaaaiins. If you want diversification, buy either a world stock fund or land in an area that is good for gardening. You'll thank your lucky charms that you did. (I'll stop now.)

I plan to sell all but the numismatic metals when the prices go back up, and invest in the market. World stock fund is already in the portfolio. As is a Glock for the zombies. :)

A few others have noted that your lot rent seems high for just a lot, and that you should probably buy your land sooner rather than later to turn that rent into a mortgage. I agree.

Considering other options, it's not that bad, considering the fact that it's in a convenient location. State parks cost around $30 per night. I can drive 40 miles towards Mt. Rainier or south past Olympia and camp temporarily for free, but that's too far away. Heck, I could easily have no "lot" expense at all by overnighting at Walmarts and Interstate rest areas. Some Walmarts allow two or three consecutive night stays. Rest areas one night only. Figuring in fuel costs, I could do that for considerably less that what I'm paying now, but it would be a real pain in the ass. (although I've seriously considered the option)  So yeah, buying the land asap is my best choice.

While you're doing this, I recommend that you figure out how much of the value of your rent is for the presence of utility and sewage hookups, how much is for location (prime location? not?) and how much is for land itself. When you go to buy your land, don't forget to add the cost of utility and sewage arrangements to the cost.

I hope to find land that has existing utilities, with or without an existing structure. If not, cost of adding utilities will be known before the purchase. As will the estimated costs of monthly utility costs.