Author Topic: Case Study UPDATE  (Read 7130 times)

Éowynd

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Case Study UPDATE
« on: January 27, 2016, 09:15:48 AM »
I grew up in a family of engineers; Dad, Mom, older and younger sister (I'm the middle sister).  I completed my Mech. E. bachelor and master degrees in 2012 and 2013 respectively.  I started working for the Federal Government in 2010; work-school-school-work-school etc.  My job is tolerably fine and I am grateful to have it.  However, I was never really interested in engineering and that hasn’t changed.  (See the long explanation below case study for more info.)  I am motivated to get to FI as soon as possible.  I currently live in my parents’ home.  I am expected to start paying rent ($200) when I turn 26.  Also, I will have to start paying for healthcare at 26.  Obviously, my budget is going to change in the future!  This brings me to the subject line of my post.  How much do I need to have saved in order to declare myself FI/RE if I don’t know what my expenses will be in the future?  Here is what I am working with (numbers are rounded):

Current Gross Salary: 78,000/year

My paycheck is set to automatically contribute $1300/month to TSP (per pay period: $450 to Traditional account, $200 to Roth account).

After TPS deductions and taxes, Net Pay: $3000/month.

Debts: None

Assets:
$11,000 - Credit Union Savings Account
$15,000 - Vanguard Roth IRA (VTSMX)
$18,000 - Vanguard VTSMX
$25,000 - TSP Traditional   (90% stocks, 10% bonds)
$7,000 - TSP Roth (90% stocks, 10% bonds)
Current Net Worth: $76,000


I tracked all of my expenses in 2015 and used those to estimate a very realistic spending budget for 2016. As of today, I have $240 left in my January budget.

2016 Spending Budget: $12,000 + $7,800 = $19,800/year or $1,650/month.

Monthly Breakdown:
$650 - Tithe (This is divided between Compassion International, local charities and my church)
$300 - Food
$100 - Car repair (My car is a 2005 Ford Focus wagon)   
$125 - Car insurance and fuel
$125 - CrossFit gym
$20 - Cell phone
$80 - Clothes
$80 - Gardening
$50 - Entertainment
$20 - Gifts
$50 - Tools
$50 - Misc.

I know this is a really long post.  If you’ve made it this far, congratulations!

Some specific questions are:
In the interest of constant optimization, what can I do better?
Investment advice is especially requested; the only thing I know right now is “put extra money in VTSMX”.


Here is why I am interested in FI/RE.  Ever since I was very young, I have wanted to live in the country and have a farm.  In April 2011, I visited Nature’s Harmony Farm in Georgia and got to see their working farm in operation.  After this trip, I worked for several days as a WWOOF volunteer at White Pine Farm which is a vegetable CSA in North Branch, Michigan.  This was an eye opening experience as I realized for perhaps the first time how much work it is to make money farming.  I still wanted to farm but I didn’t want to rely on farming to pay for everything.  My farming ideas have been greatly influenced by author Gene Logsdon who lives on 22 acres in Ohio.  He writes books to make a living and spends the rest of his time farming.  He wrote one article that was titled “Maybe Farming Isn’t Supposed to Make Money.”  He explains how nature never heard of compound interest and corn grows at the same rate no matter how much money you need to pay your bills.  Gene promotes the idea of having an off-farm job to pay for living expenses and using your free time to grow food for yourself and family and friends.  He is an expert at describing the joy that can be found working on your own land.  He talks about how much money you can save by not having to buy so much food, not having to go to the gym and not having to travel to far off places because your own place is so beautiful.  This is the kind of farming that is the most interesting to me.  My goal is to own a small homestead (1-3 acres) with no debts and have a small income (FI) to pay for necessities.

_____________________________________________________________________
3 MONTH UPDATE

Here is an update on the first post from January.  All of your comments were greatly appreciated and I couldn’t have made this much progress in just a couple months without them!

Gross Salary: 78,000/year
Paycheck is set to automatically contribute $725 to Traditional TSP account each pay period.
After TPS deductions and taxes; Net Pay: $3,000/month.

Debt: None

Assets:
$6,000 - Savings Account
$17,000 - Vanguard Roth IRA (VTSMX)
$35,500 - Vanguard VTSMX
$29,500 - TSP Traditional   (90% stocks, 10% bonds)
$8,500 - TSP Roth (90% stocks, 10% bonds)
Current Net Worth: $96,500

Part of the net worth increase is due to my 2015 tax refund (~2k) and redemption of savings bonds that were childhood gifts (~2k).  I also went through my room and sold or donated everything that I did not need (~4k).  That was a surprisingly rewarding exercise; I did not realize how much stuff I had unknowingly accumulated.

I had a budget set at the beginning of January but here is my actual spending for the past three months.
Average Spending (Jan 1- March 31, 2016) = $856.33 + $650:
$650 - Tithe (as discussed, this is tied to my income and will be much lower in FI)
$325 - Food*
$145 - Car (all expenses)
$125 - CrossFit gym
$20 - Cell phone
$33 - Clothes
$74 - Gardening
$38 - Entertainment
$4 - Gifts
$45 - Tools
$48 - Misc.


Plans for the immediate future have evolved since my original post.  I still dream of owning a small homestead one day but I don’t think it’s time to purchase land yet.  Right now, the plan is to become FI with current expenses (which will increase with rent and healthcare when I turn 26).  Once I achieve that goal, I want to work on a local farm as an intern.  This will allow me to learn more about farming and homesteading without requiring me to invest any capital.  Hopefully, I could live off the wage (typically a farm intern earn room and board plus a minimal stipend) from the farm and let my savings grow on their own.  It is technically possible to take leave without pay (LWOP) from my current job although it would probably be frowned upon: “it’s bad for your career”.  Ideally, I would take LWOP for ~4 months during the summer to go work on a farm.  When I reach “semi-FI” I will investigate this possibility further.


*This number is really high.  I’ve decided to record the price of individual food items purchased for the next 3 months to get a better understanding of why I spend so much on food.  None of this is restaurant spending; it is all grocery store or online purchases.  I do buy some groceries that are eaten by the whole family (~$40 per month) and food for potluck lunches at work (~$20/month).  Other than that, I have no idea why my food bill is so disproportionate to all the other expenses.
« Last Edit: September 14, 2016, 05:39:39 AM by Éowyn MI »

CU Tiger

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Do you have any debt at all?
 
Have you done research to see how much a homestead like the one you want would cost, in various areas you would like to live in? The price between a small, hobby farm are different in say... Pickens County, SC and Marin County, CA.

Do you read some of the good homesteading journals out there?

I think the thing to do is start forecasting your expenses for your home and land, healthcare, food, auto, etc. a lot of those are costs you can research now.

nereo

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You are doing really good - keep it up.
Quote
How much do I need to have saved in order to declare myself FI/RE if I don’t know what my expenses will be in the future?  Here is what I am working with (numbers are rounded):

It's not surprising that you don't know what your expenses will be in the future, especially at your age.  There are ways of estimating this, and CU Tiger lays out some good suggestions.  But ultimately I wouldn't loose too much sleep.  Over time your estimates will get better and your FI/RE requirements will get clearer.  in the meantime your goal should be the same:  Save as much as you possibly can without substantially impacting your current quality of life.

Quote
In the interest of constant optimization, what can I do better?
Investment advice is especially requested; the only thing I know right now is “put extra money in VTSMX”.
Overall it looks very good.  Reasonably high income, no glaring expenses.  I question why gardening and tools cost quite so much every single month, but if that's what you want to spend your money on I'm not one to argue.  If you can do things at work to raise your income it will cut years from your FI/RE date.  If you feel your job is fairly stable I might move some of that $11k into an investment account, but this gets into personal preference for handling emergencies.  $11k is about 7 months worth of expenses... depending on job security you might consider dropping that to ~3 months (you already have a large positive net worth and no dependants).

AT your income I'd suggest looking at a tIRA instead of a ROTH.  See this post..  Also - are you maxing out your TSP every year?  If not, do so.  Beyond that, despite it's simplicity, 'put extra money in the (low-cost index fund of your choice)'  is actually really good advice.

bobechs

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In rural areas on the American high plains (which has been depopulating more or less since the Dust Bowl days) you will find that a goodly number of college educated non-hobby farmers, whether on the margin of profitability or not, have side careers as public school teachers.

It's not the best job out there, except that in these areas it actually is the best job out there.  Compared to ag salesmen, Co-Op managers, county commissioners, and other bridge occupations.

Make of it what you will.

ooeei

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I grew up in a family of engineers; Dad, Mom, older and younger sister (I'm the middle sister).  I completed my Mech. E. bachelor and master degrees in 2012 and 2013 respectively.  I started working for the Federal Government in 2010; work-school-school-work-school etc.  My job is tolerably fine and I am grateful to have it.  However, I was never really interested in engineering and that hasn’t changed.  (See the long explanation below case study for more info.)  I am motivated to get to FI as soon as possible.  I currently live in my parents’ home.  I am expected to start paying rent ($200) when I turn 26.  Also, I will have to start paying for healthcare at 26.  Obviously, my budget is going to change in the future!  This brings me to the subject line of my post.  How much do I need to have saved in order to declare myself FI/RE if I don’t know what my expenses will be in the future?  Here is what I am working with (numbers are rounded):

Current Gross Salary: 78,000/year

My paycheck is set to automatically contribute $1300/month to TSP (per pay period: $450 to Traditional account, $200 to Roth account).

After TPS deductions and taxes, Net Pay: $3000/month.

Debts: None

Assets:
$11,000 - Credit Union Savings Account
$15,000 - Vanguard Roth IRA (VTSMX)
$18,000 - Vanguard VTSMX
$25,000 - TSP Traditional   (90% stocks, 10% bonds)
$7,000 - TSP Roth (90% stocks, 10% bonds)
Current Net Worth: $76,000


I tracked all of my expenses in 2015 and used those to estimate a very realistic spending budget for 2016. As of today, I have $240 left in my January budget.

2016 Spending Budget: $12,000 + $7,800 = $19,800/year or $1,650/month.

Monthly Breakdown:
$650 - Tithe (This is divided between Compassion International, local charities and my church)
$300 - Food
$100 - Car repair (My car is a 2005 Ford Focus wagon)   
$125 - Car insurance and fuel
$125 - CrossFit gym
$20 - Cell phone
$80 - Clothes
$80 - Gardening
$50 - Entertainment
$20 - Gifts
$50 - Tools
$50 - Misc.

I know this is a really long post.  If you’ve made it this far, congratulations!

Some specific questions are:
In the interest of constant optimization, what can I do better?
Investment advice is especially requested; the only thing I know right now is “put extra money in VTSMX”.


Here is why I am interested in FI/RE.  Ever since I was very young, I have wanted to live in the country and have a farm.  In April 2011, I visited Nature’s Harmony Farm in Georgia and got to see their working farm in operation.  After this trip, I worked for several days as a WWOOF volunteer at White Pine Farm which is a vegetable CSA in North Branch, Michigan.  This was an eye opening experience as I realized for perhaps the first time how much work it is to make money farming.  I still wanted to farm but I didn’t want to rely on farming to pay for everything.  My farming ideas have been greatly influenced by author Gene Logsdon who lives on 22 acres in Ohio.  He writes books to make a living and spends the rest of his time farming.  He wrote one article that was titled “Maybe Farming Isn’t Supposed to Make Money.”  He explains how nature never heard of compound interest and corn grows at the same rate no matter how much money you need to pay your bills.  Gene promotes the idea of having an off-farm job to pay for living expenses and using your free time to grow food for yourself and family and friends.  He is an expert at describing the joy that can be found working on your own land.  He talks about how much money you can save by not having to buy so much food, not having to go to the gym and not having to travel to far off places because your own place is so beautiful.  This is the kind of farming that is the most interesting to me.  My goal is to own a small homestead (1-3 acres) with no debts and have a small income (FI) to pay for necessities.

Edited to add: no debts

Well, you can always estimate what your future costs will be and use that, adding in the house and land will be either expensive or extremely expensive depending on where you go. Just for a rough start maybe add $1000/month for it.  That puts your 25x expense number at just under $800k. 

That being said, for right now I'd just focus on saving like crazy.  Once you hit 15-20x your current expenses you can get detailed with your planning.

Obviously the big one you could cut back on would be charity, it's almost 40% of your spending!  That depends on what you value, so you may want to keep it.  Assuming you're growing lots of stuff now, maybe you could donate extra crops you grow to charity in lieu of some of the monetary donations?  The other ones that jump out at me are clothes ($960/year), gardening ($960/year), and tools ($600/year).  On a monthly basis they don't look like much, but that's $2500 per year you spend on those things.  Some of this may be start up costs that you expect to decrease, if that's the case I'd caution you to keep an eye on it.  It's really easy to replace perfectly good stuff with an "upgraded" version because it's in the budget and you like new gizmos (ask me how I know...).  Exotic seeds from catalogs get expensive too, I learned that the hard way doing my balcony garden.  A packet of 100 basil seeds was $5 online, but locally they sold seedlings for $1 each.  I really only needed 2-3 plants, but instead I bought 100 seeds because they were a "better deal."
« Last Edit: January 27, 2016, 09:53:47 AM by ooeei »

MDM

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In the interest of constant optimization, what can I do better?
Éowyn MI, welcome to the forum.

As you are in the 25% federal (plus any state & local) tax bracket, contributing everything to traditional in the TSP instead of Roth is likely best.  Same goes for IRAs.

See rules of thumb below and think "TSP" wherever "401k" appears.

While you are still on your parents' insurance...is that an HDHP?  If so, you may be eligible to contribute $6650 for 2015 to your own HSA.

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks   
1. Company match rates are likely the highest percent return you can get on your money   
2. When the guaranteed return is this high, take it.   
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.   
4. Rule of thumb: traditional if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between (or see   
   http://forum.mrmoneymustache.com/investor-alley/deciding-between-roth-and-traditional-ira-based-on-marginal-tax-rate/
   if you want even more details on that topic).  See also
   http://forum.mrmoneymustache.com/ask-a-mustachian/case-study-overwhelming-student-loan-debt-how-would-you-get-started/msg868845/#msg868845
   and other posts in that thread about exceptions to the rule.
5. See #4 for choice of traditional or Roth for 401k   
6. Applicability depends on the rules for the specific 401k   
7. Again, take the risk-free return if high enough   
8. Because earnings, even if taxed, are beneficial   

The emergency fund is your "no risk" money.  You might consider one of these online banks: http://www.magnifymoney.com/blog/earning-interest/best-online-savings-accounts275921001   
      
If your 401k options are poor (i.e., high fund fees) you can check   
   http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/
for some thoughts on "how high is too high?"   


ender

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Here is why I am interested in FI/RE.  Ever since I was very young, I have wanted to live in the country and have a farm.  In April 2011, I visited Nature’s Harmony Farm in Georgia and got to see their working farm in operation.  After this trip, I worked for several days as a WWOOF volunteer at White Pine Farm which is a vegetable CSA in North Branch, Michigan.  This was an eye opening experience as I realized for perhaps the first time how much work it is to make money farming.  I still wanted to farm but I didn’t want to rely on farming to pay for everything.  My farming ideas have been greatly influenced by author Gene Logsdon who lives on 22 acres in Ohio.  He writes books to make a living and spends the rest of his time farming.  He wrote one article that was titled “Maybe Farming Isn’t Supposed to Make Money.”  He explains how nature never heard of compound interest and corn grows at the same rate no matter how much money you need to pay your bills.  Gene promotes the idea of having an off-farm job to pay for living expenses and using your free time to grow food for yourself and family and friends.  He is an expert at describing the joy that can be found working on your own land.  He talks about how much money you can save by not having to buy so much food, not having to go to the gym and not having to travel to far off places because your own place is so beautiful.  This is the kind of farming that is the most interesting to me.  My goal is to own a small homestead (1-3 acres) with no debts and have a small income (FI) to pay for necessities.

My wife and I would love to do something like this too! This is pretty much our dream someday.

We have talked about volunteering on a hobby farm a few of our acquaintances we know have (who are much older than us) this summer.


Regarding the IRA conversation, you can only fully deduct a traditional IRA if your income is below $61k - luckily, TSP contributions reduce your income for this calculation, so if you do the full $18k into your TSP you'll have $60k worth of income - so you could completely deduct the full IRA from your taxes.

CmFtns

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Unless your planning on living on > $78,000 per year when you are FI (and you are probably not) then you should be dumping as much money as possible into pre-tax accounts, not ROTH accounts or after tax investments.

As for your budget
Monthly Breakdown:
$650 - Tithe This is large and something I do not choose to do but too many strong feelings here to discuss
$300 - Food 1 person can live on $150/mo fairly easily. Food seems to be a lot of people's weak points
$100 - Car repair I see no problems
$125 - Car insurance and fuel I see no problems
$125 - CrossFit gym If you want to get serious about saving, invest is some equipment and work out at home, even better invite your crossfit friends to do it with you and they can save money too
$20 - Cell phone perfect
$80 - Clothes Not that high but I probably only buy that much per year
$80 - Gardening Seems high but everyone's got to have a hobby and if this is yours then go for it
$50 - Entertainment mehhh, its fine
$20 - Gifts mehhh, its fine
$50 - Tools what kind of tools is this?
$50 - Misc. you should categorize this

Éowynd

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RE:
« Reply #8 on: January 27, 2016, 12:31:59 PM »
Thanks for all of the great replies!

Currently, I'm planning to stay living in Michigan.

I will change my TSP allocation to 100% traditional.

My job is pretty stable so I probably should move more $$$ out of my bank account.

Tithe is directly related to income for right now.  Eventually(in FI), I plan for it to be 10% of my annual spending budget.

The gardening and tools part of my budget is estimated from my actual spending in these categories last year.  If I don't spend the budgeted amount, I will just save more.

CrossFit is something that I do because of my engineering (sedentary) job.  I quit the gym for 6 months once and I got fatter and slower.  When I am not working full time as an engineer, I plan to drop the gym membership.

sweettea

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Have you considered scaling up the garden to provide enough exercise to replace CrossFit? Compost pile turning gives a really thorough workout, in my opinion, and there exist people who swear by turning their compost twice a day. Winter shouldn't be too much of a problem if you cover it and turn frequently to keep it hot.

CmFtns

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Re: RE:
« Reply #10 on: January 27, 2016, 01:17:19 PM »
Thanks for all of the great replies!

Currently, I'm planning to stay living in Michigan.

I will change my TSP allocation to 100% traditional.

My job is pretty stable so I probably should move more $$$ out of my bank account.

Tithe is directly related to income for right now.  Eventually(in FI), I plan for it to be 10% of my annual spending budget.

The gardening and tools part of my budget is estimated from my actual spending in these categories last year.  If I don't spend the budgeted amount, I will just save more.

CrossFit is something that I do because of my engineering (sedentary) job.  I quit the gym for 6 months once and I got fatter and slower.  When I am not working full time as an engineer, I plan to drop the gym membership.

If you plan to tithe 10% of your spending budget in retirement then why is your tithe not 10% of your spending budget now?

I know it's a touchy subject but I know when I've seen this discussed in other threads some people have decided to delay giving money and time toward charities during their accumulation phase in order to reach their goals earlier so that they could give more time and money later in their life once they are retired.

Axecleaver

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You're killing it, great start! You also have a solid dream identified early in your life, that's a wonderful thing.

In regards to tuning your current operation, I agree with the other posters that switching to a tax deferred IRA and TSP instead of Roth is a much better plan in the 25% bracket. You should maximize those contributions first and then put more away into your taxed investments, which you could liquidate to buy property when you are ready. Your tithe is about 10% of your gross income, but 20% of your net income after taxes and retirement contributions. Up to you if that's a good place for it to be right now while you're accumulating.

To answer your original question: How do I plan for FI if I don't know what my expenses will be? The answer is, a budget.

There are some great books and articles on identifying good candidate properties for homesteading. If you're willing to buy a tax-foreclosure or bank foreclosure property, or bare land and build your own, or forested land you're willing to clear, you can get into some of these properties for very little money down. Start small with a 5 acre property, develop a half acre, and make the farmhold bigger as you have the time. It's a lot of work to keep a half acre garden, add in some chickens and fruit trees and you'll have enough to do.

You can use the case study/budgeting tools here to plan for what your life might look like in the future, and build a budget based on your best guesses. Look online for distressed properties to buy, for an idea what they cost. Good luck on your exciting journey.

Neustache

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Re: RE:
« Reply #12 on: January 27, 2016, 02:33:28 PM »
Thanks for all of the great replies!

Currently, I'm planning to stay living in Michigan.

I will change my TSP allocation to 100% traditional.

My job is pretty stable so I probably should move more $$$ out of my bank account.

Tithe is directly related to income for right now.  Eventually(in FI), I plan for it to be 10% of my annual spending budget.

The gardening and tools part of my budget is estimated from my actual spending in these categories last year.  If I don't spend the budgeted amount, I will just save more.

CrossFit is something that I do because of my engineering (sedentary) job.  I quit the gym for 6 months once and I got fatter and slower.  When I am not working full time as an engineer, I plan to drop the gym membership.

If you plan to tithe 10% of your spending budget in retirement then why is your tithe not 10% of your spending budget now?

I know it's a touchy subject but I know when I've seen this discussed in other threads some people have decided to delay giving money and time toward charities during their accumulation phase in order to reach their goals earlier so that they could give more time and money later in their life once they are retired.


This is my plan, as well, OP, to tithe off of income now, and tithe off of spending amounts when FIRE'd.  Because when we retire, our income will match our spending (as in, what I and the government counts as income is what we take out and use to spend).  So spending will equal income when we retire.  Our tithing will go down by at least half because our current expenses are much lower than our income. 

ender

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Re: RE:
« Reply #13 on: January 27, 2016, 02:37:28 PM »
This is my plan, as well, OP, to tithe off of income now, and tithe off of spending amounts when FIRE'd.  Because when we retire, our income will match our spending (as in, what I and the government counts as income is what we take out and use to spend).  So spending will equal income when we retire.  Our tithing will go down by at least half because our current expenses are much lower than our income.

I'm glad I saw this, it seems like a very reasonable idea for retirement - I know my wife and I have talked about this, given that tithing is about 25% of our yearly spend currently it makes a big impact on our "retirement expenses" :)

Roboturner

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Traditionally, "tithe" means 1/10th, so you could stick to that rule and know what it is you're giving, investing those overages

eliza

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Wouldn't you theoretically tithe now on your income minus what you are saving for retirement?  Otherwise, wouldn't you be double tithing -once on your income you earn now and once again when you spend what you saved of the income you already tithed on.

That said, tithing is a very personal matter and you should do what feels right to you.  Nothing wrong with being more charitable than required by a strict definition.


Yankuba

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« Last Edit: January 28, 2016, 08:51:32 AM by Yankuba »

CU Tiger

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While you are saving and planning for FI or FIRE, you can learn and practice a lot of the skills you need to have as a small farmer.

Things you could learn:

Small engine repair - you will save yourself a lot if you can repair your tractor, mower, etc. Shade tree mechanic could also be a source of income.

Gardening. Canning. How to take care of animals - if you want chickens, etc.

DIY building and carpentry. My experience is that even hobby farmers build their own fences, build sheds, etc.

Here are some of my favorite blogs by small/hobby farmers, and urban homesteaders:

DIY Diva
Hip Chick Digs
Northwest Edible Life

Are you able to garden at your family home or can you hook up with local community gardens?

SwordGuy

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You plan for FI by stashing away money into investments and cutting unnecessary expenses that don't really add adequate happiness.

As you get closer, you will know what your expenses will be.

Or your spouse will... :)

MrsPete

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My job is tolerably fine and I am grateful to have it.  However, I was never really interested in engineering and that hasn’t changed. 
Some people love their jobs, others never will.  My two kids are different in this:  My oldest always knew what she was "supposed to do" and is highly career motivated.  My youngest doesn't have a passion for anything in particular and thinks something's wrong with her because of that.  Don't sweat it:  Those of you who don't love your jobs and do it for the money were just born a generation or two too late.  Those of us who are 20 years older than you never expected to be "fulfilled" in any way at work. 

How much do I need to have saved in order to declare myself FI/RE if I don’t know what my expenses will be in the future? 
At your age, it doesn't matter:  Your main goal is just to SAVE, SAVE, SAVE. 
While you're doing it, investigate the cost of a farm in the area where you'd like to live and investigate the cost of "starting up".  Perhaps you have a 4H club or County Extension Office that would offer you opportunities to learn more about farming?  As you learn more, you'll figure out your comfort level ... but it'll be a good while 'til you're ready to make that leap, so your main goal should be to pile up money, not necessarily to know just yet how you'll spend it.

This was an eye opening experience as I realized for perhaps the first time how much work it is to make money farming. 
Keep in mind, too, that farming isn't a reliable paycheck.  This year we made only half of what we made last year.  It's a hard pill to swallow, and we're glad it's a sideline for us. 
« Last Edit: January 27, 2016, 09:29:25 PM by MrsPete »

Fire2025

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Your budget looks great.  And I'm new to this, so I don't have any help with budget stuff. 

But I really like this blog:
http://www.frugalwoods.com/

They are working towards FIRE so they can homestead in Vermont.  I think you would like it too.

Éowynd

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Things you could learn:

Gardening. Canning. How to take care of animals - if you want chickens, etc.

Here are some of my favorite blogs by small/hobby farmers, and urban homesteaders:

DIY Diva
Hip Chick Digs
Northwest Edible Life

Are you able to garden at your family home or can you hook up with local community gardens?

Yes!  I do garden at home and I have a community garden plot (24' x 24').  Last year, I grew enough potatoes to feed my family of five from June to December :)  Every year, I experiment with a few new plants and try to do better with the ones that I already know how to grow.  I canned jam and tomato sauce last year with my family who are very supportive but not quite as enthusiastic about homesteading as I am.  I have experience caring for rabbits and a puppy.  I have read a lot about chickens but I haven't cared for them yet.

NW Edible Life is great!  Some blogs that I follow include:
The Deliberate Agrarian
5 Acres and a Dream
Adventures in the Good Land (Ohio Farm Girl)

Wouldn't you theoretically tithe now on your income minus what you are saving for retirement?  Otherwise, wouldn't you be double tithing -once on your income you earn now and once again when you spend what you saved of the income you already tithed on.

That said, tithing is a very personal matter and you should do what feels right to you.  Nothing wrong with being more charitable than required by a strict definition.

Yes, it probably could be considered double tithing but to me it would feel wrong to do anything else.  I actually don't mind it being such a large part of my budget.  I absolutely love having money already set aside for when my friends want to go on a mission trip and really need money to make it happen.  I have never wanted to travel overseas but I am glad that I can help support their trip.  I love reading letters from the little girl in Peru who I support through Compassion.  Having this much money to give away is one of the things that makes my job worthwhile.

In regards to tuning your current operation, I agree with the other posters that switching to a tax deferred IRA and TSP instead of Roth is a much better plan in the 25% bracket. You should maximize those contributions first and then put more away into your taxed investments, which you could liquidate to buy property when you are ready.

I need to do more research on this.  Somehow, I thought that I could not have a traditional IRA and a traditional TSP.  Also, I need to do more careful calculations about maxing my Traditional TSP.  Do government contributions count towards the max?  I have yet to find a "Max out my TSP contributions" checkbox :)

Some people love their jobs, others never will.  My two kids are different in this:  My oldest always knew what she was "supposed to do" and is highly career motivated.  My youngest doesn't have a passion for anything in particular and thinks something's wrong with her because of that.  Don't sweat it:  Those of you who don't love your jobs and do it for the money were just born a generation or two too late.  Those of us who are 20 years older than you never expected to be "fulfilled" in any way at work. 

Keep in mind, too, that farming isn't a reliable paycheck.  This year we made only half of what we made last year.  It's a hard pill to swallow, and we're glad it's a sideline for us. 

Thank you!  I have felt pressure to like my job because if I don't, it must mean that I made a bad career choice (I don't agree with that narrative, it just feels like it sometimes).  I'm not expecting to make any money farming.  I'm just hoping not to spend too much on it!

Or your spouse will... :)

That would be plan A.  Nothing seems to be happening with that plan though so I'm working on plan B now.  On the bright side, plan B does not exclude the possibility of plan A taking place sometime in the future :)

dantownehall

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Re: Case Study
« Reply #22 on: January 28, 2016, 07:12:32 AM »
I grew up in a family of engineers; Dad, Mom, older and younger sister (I'm the middle sister).  I completed my Mech. E. bachelor and master degrees in 2012 and 2013 respectively.  I started working for the Federal Government in 2010; work-school-school-work-school etc.  My job is tolerably fine and I am grateful to have it.  However, I was never really interested in engineering and that hasn’t changed.  (See the long explanation below case study for more info.)  I am motivated to get to FI as soon as possible.  I currently live in my parents’ home.  I am expected to start paying rent ($200) when I turn 26.  Also, I will have to start paying for healthcare at 26.  Obviously, my budget is going to change in the future!  This brings me to the subject line of my post.  How much do I need to have saved in order to declare myself FI/RE if I don’t know what my expenses will be in the future?  Here is what I am working with (numbers are rounded):

Current Gross Salary: 78,000/year



My paycheck is set to automatically contribute $1300/month to TSP (per pay period: $450 to Traditional account, $200 to Roth account).

After TPS deductions and taxes, Net Pay: $3000/month.

Debts: None

Assets:
$11,000 - Credit Union Savings Account
$15,000 - Vanguard Roth IRA (VTSMX)
$18,000 - Vanguard VTSMX
$25,000 - TSP Traditional   (90% stocks, 10% bonds)
$7,000 - TSP Roth (90% stocks, 10% bonds)
Current Net Worth: $76,000


I tracked all of my expenses in 2015 and used those to estimate a very realistic spending budget for 2016. As of today, I have $240 left in my January budget.

2016 Spending Budget: $12,000 + $7,800 = $19,800/year or $1,650/month.

Monthly Breakdown:
$650 - Tithe (This is divided between Compassion International, local charities and my church)
$300 - Food
$100 - Car repair (My car is a 2005 Ford Focus wagon)   
$125 - Car insurance and fuel
$125 - CrossFit gym
$20 - Cell phone
$80 - Clothes
$80 - Gardening
$50 - Entertainment
$20 - Gifts
$50 - Tools
$50 - Misc.

I know this is a really long post.  If you’ve made it this far, congratulations!

Some specific questions are:
In the interest of constant optimization, what can I do better?
Investment advice is especially requested; the only thing I know right now is “put extra money in VTSMX”.


Here is why I am interested in FI/RE.  Ever since I was very young, I have wanted to live in the country and have a farm.  In April 2011, I visited Nature’s Harmony Farm in Georgia and got to see their working farm in operation.  After this trip, I worked for several days as a WWOOF volunteer at White Pine Farm which is a vegetable CSA in North Branch, Michigan.  This was an eye opening experience as I realized for perhaps the first time how much work it is to make money farming.  I still wanted to farm but I didn’t want to rely on farming to pay for everything.  My farming ideas have been greatly influenced by author Gene Logsdon who lives on 22 acres in Ohio.  He writes books to make a living and spends the rest of his time farming.  He wrote one article that was titled “Maybe Farming Isn’t Supposed to Make Money.”  He explains how nature never heard of compound interest and corn grows at the same rate no matter how much money you need to pay your bills.  Gene promotes the idea of having an off-farm job to pay for living expenses and using your free time to grow food for yourself and family and friends.  He is an expert at describing the joy that can be found working on your own land.  He talks about how much money you can save by not having to buy so much food, not having to go to the gym and not having to travel to far off places because your own place is so beautiful.  This is the kind of farming that is the most interesting to me.  My goal is to own a small homestead (1-3 acres) with no debts and have a small income (FI) to pay for necessities.

Edited to add: no debts

I don't have advice for you, but based on your description I think we may be the same person.  Just replace Gene Logsdon with Wendell Berry.
« Last Edit: January 28, 2016, 07:19:40 AM by dantownehall »

use2betrix

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Out of curiosity, what is your thought process still living at home? You are debt free and out of school. You mention paying them rent when your are 26, but are still 24?

I feel like independence is a bit part of being an adult.

Éowynd

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I don't have advice for you, but based on your description I think we may be the same person.  Just replace Gene Logsdon with Wendell Berry.

Wendell Berry is a really good author too!  However, he doesn't have the same positive vibe that I get when I read Gene Logsdon.  Wendell Berry's books usually make me feel like I'm watching Gone with the Wind.  He celebrates the good parts of a past era.  Gene Logsdon gives advice that can be used in modern life.

Out of curiosity, what is your thought process still living at home? You are debt free and out of school. You mention paying them rent when your are 26, but are still 24?

I feel like independence is a bit part of being an adult.

I never claimed to be an adult yet.  I love my birth family and it is much easier to save money living at home.  I feel that independence is over-hyped in modern American culture.  Have you heard of the concept of the family economy?  My life is better because of my family and I do my best to make their lives better as well.  Also, I would be really lonely living in an apartment.  And I would have less/no space to garden...

Neustache

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^That was a good response! 

I think you are incredibly independent, and I bet you are a huge blessing to your family.  If my daughter is anything like you when she's your age, I will gladly let her stay with us and chip in for the housing expenses. We have a 1900 square foot home, which will be way too big once the kids leave - if she's not married (or shoot, even if she is!) and wants to live here for efficiencies sake, I'd be okay with that!  It doesn't make her any less 'adult' than those who choose to have room-mates as an adult.

Your situation is not the typical part-time loafer in the basement stereotype.  I love it. 

MDM

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In regards to tuning your current operation, I agree with the other posters that switching to a tax deferred IRA and TSP instead of Roth is a much better plan in the 25% bracket. You should maximize those contributions first and then put more away into your taxed investments, which you could liquidate to buy property when you are ready.
I need to do more research on this.  Somehow, I thought that I could not have a traditional IRA and a traditional TSP.  Also, I need to do more careful calculations about maxing my Traditional TSP.  Do government contributions count towards the max?  I have yet to find a "Max out my TSP contributions" checkbox :)
You may have any combination of traditional and Roth IRAs and TSPs you desire.  There are limits to the deductibility of a tIRA if
1) you have a TSP, and
2) your income is above a certain amount.
See https://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits.  Perhaps that was what you were thinking about?

Government contributions do not count toward your personal $18K maximum.

Decent payroll software (e.g., what one might expect the government to have) will simply stop the TSP deductions once you hit your maximum.  Check with HR/payroll to confirm.  Also google "401k true-up", then check with HR/payroll to see if there is a downside to hitting your maximum early in the year.


Dicey

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If everyone was forced to learn, understand and execute the concept of

"The more you save and the sooner you save/invest it, the fewer actual dollars you will need to save and the sooner you will reach FI."

there would be a lot more FIRE'd people in this world doing great things. Wage slaves might even cease to exist.

Just continue saving as hard as you can for now. I might challenge you to re-think your tithing just a little bit. I understand that you're tithing "only" 10% of your gross, as apparently others do not, but you could also consider a separate "future tithing investment account" of some sort. That is, if your future plans include putting huge chunks of your life energy to charitable works (i.e. way more than 10%), saving more sooner might put you in a position of contributing more faster. Sorry if that's confusing, but it's unconventional thinking that might get you where you want to be well before you ever thought possible.

And of course, promise to come back and update us on your progress...

Éowynd

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This post has been a big encouragement to me over the past few days.  Personal finance management is a difficult topic on which to have a conversation (I'm talking about face-to-face discussion).  Everyone has strong opinions, comes from different backgrounds and has various experiences that color their ideas on money.  Too often, it is simply not discussed.  In my family, the financial guidance that I received was basically this: "Don't go into debt.  Life takes a lot of money and you won't be happy without it.  Put your savings in the bank because buying stocks = gambling."  I am very excited about the possibilities opened up by FI/RE.  I quit worrying about money the day I realized that I could be happy living on minimum wage (not that I want to do that, just that it is possible).  Thank you to everyone who has contributed to this discussion!  Here is what I've learned:

Max out Traditional TSP account (Done.  Contributions are spread across the whole year.)

Invest in a Traditional IRA next year (I already contributed to my Roth IRA this year)

Reduce the amount of $$$$ sitting in the bank.

Work to reduce spending in categories that are not going away (Food, Clothes)

Don't worry about current quality of life expenses that will not be a part of my FI budget (CrossFit)

Do research in my local area to determine a realistic amount that will be needed for future categories (house + land purchase and healthcare)

Save lots of money while living a full life right now!

nereo

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Invest in a Traditional IRA next year (I already contributed to my Roth IRA this year)


It's not too major, but you can recharacterize your ROTH contribution to a tIRA and deduct that from your taxes.  IF you are with Vanguard you can all their concierge service and they'll generate all the paperwork you need to do this, then you just need to print it out nad sign it.

Up to you... you could certainly just say "meh, I"ll just pay the taxes on it this year and have a bit more in my ROTH", but it most likely would save you some money in the long run.

Neustache

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On the Roth to t.IRA conversion -

One thing to consider is that contributions (not any growth) in a Roth can be taken out and don't have to be put back in - without penalty.  So if you don't convert, you can sort of consider the contributions in your Roth as a mini-emergency fund should you ever need it.  But you'll also pay more in taxes this year.  Just thought I'd throw out a possible upside to leaving it in the Roth if you don't feel like doing the work in converting it.  I had contributed about 1K to my husbands ROTH before I opened a t. ira for tax purposes, but I'm not re-characterizing it, I'm just looking at it as a penalty free option if I need the money for some reason.  I'm paying about $150 in additional taxes by not changing it, and I'm okay with that.

nereo

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On the Roth to t.IRA conversion -

One thing to consider is that contributions (not any growth) in a Roth can be taken out and don't have to be put back in - without penalty.  So if you don't convert, you can sort of consider the contributions in your Roth as a mini-emergency fund should you ever need it.  But you'll also pay more in taxes this year.  Just thought I'd throw out a possible upside to leaving it in the Roth if you don't feel like doing the work in converting it.  I had contributed about 1K to my husbands ROTH before I opened a t. ira for tax purposes, but I'm not re-characterizing it, I'm just looking at it as a penalty free option if I need the money for some reason.  I'm paying about $150 in additional taxes by not changing it, and I'm okay with that.
Good point Neustache.  Having some ROTH contributions can be a good "ER fund of last resort" precisely because you can those contributions out. 
OP - since you are planning on reducing your ER fund somewhat (which I think is a good idea... put those dollars to work!) I'd leave a couple month's expenses in a savings account as your primary (first level) ER fund, then leave that $5500 in your ROTH as a last-resort ER fund.
All future contributions can be towards a tIRA as long as you are in the higher tax bracket.

dantownehall

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Re: Case Study
« Reply #32 on: January 29, 2016, 07:10:44 AM »
I don't have advice for you, but based on your description I think we may be the same person.  Just replace Gene Logsdon with Wendell Berry.

Wendell Berry is a really good author too!  However, he doesn't have the same positive vibe that I get when I read Gene Logsdon.  Wendell Berry's books usually make me feel like I'm watching Gone with the Wind.  He celebrates the good parts of a past era.  Gene Logsdon gives advice that can be used in modern life.

Yeah, I get that.  He can come across as kind of doom and gloom and atavistic sometimes, but I think if you balance all his poetry (which is frequently super positive and beautiful) against his essays you get a better sense of what he's about.  I think he's pretty interested in the present/modern times as well, but maybe more interested in using the best out of the past/tradition to improve the way we live now, as opposed to innovating all the time.

SeanMC

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I don't have specific advice either, except to say that you seem to have a really good handle on what you want and how to get it.

The closer you get to FI, the more crystallized your expenses will be. So no need to worry about the uncertainty portion now.

The biggest 'missing' piece that I see is that you don't mention if you intend to have a partner or spouse in the future (or try to). I don't assume that everyone wants to be partnered as opposed to single. Homesteading and farming are specific lifestyle goals, and the big uncertainty here is if you are seeking a companion, partner or spouse who has similar goals and compatible financial values, what their financial picture looks like.

Éowynd

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Re: Case Study UPDATE: I’m 24. etc...
« Reply #34 on: April 01, 2016, 09:04:23 AM »
Updated the original post with Jan-Mar 2016 info.

ooeei

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Re: Case Study UPDATE: I’m 24. etc...
« Reply #35 on: April 01, 2016, 10:05:47 AM »
Updated the original post with Jan-Mar 2016 info.

Looks like you've made some very good progress.  $20k in 2 months is nothing to sneeze at.

Éowynd

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Re: Case Study UPDATE
« Reply #36 on: September 14, 2016, 05:57:54 AM »
Just wanted to give you all a quick update on the progress made since my last post.  I am really excited to let you all know that the concept of paying yourself first really works!!  Of course, you probably knew that already, but it feels different when you experience it first hand.  My new NW is $114k.  A significant percentage of this progress has come from investment growth but the biggest difference has been the consistent automatic investments in my TSP retirement account.  One major purchase that put a dent in my NW growth was a new-to-me car (2014 Ford Focus hatchback; 9.5k) that I purchased in June.  However, this car is a significant improvement over my old one and has directly reduced the amount of time I spend waiting in a car repair shop.

In other news, I'm going to work on a farm!  I have planned a 10 day vacation from work in October and I'm going to spend one week helping out at a farm in TN.  I'm really looking forward to this learning experience.

grosvenor6

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Re: Case Study UPDATE
« Reply #37 on: September 14, 2016, 06:18:07 AM »
I am in a similar position to you.  I want to FIRE as quick as possible because I work somewhere I do not enjoy at all and my dream would be to work with wildlife conservation, but where I live there is not much work I could do that would let me do my dream job.  You are doing very well so far, I hope you achieve your dream of owning a homestead!

Dee18

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Re: Case Study UPDATE
« Reply #38 on: September 14, 2016, 06:52:45 AM »
What an interesting journal!  Congratulations on your rapid progress.