Author Topic: I want to leap into FI but not sure my plan is solid enough...what do you think?  (Read 2469 times)

Dia

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Hello everyone, 

I want to attempt something daring right now in my life, but am feeling a high level of anxiety as the last months of my plan count down.   I intend to quit my steady job of ten years and take my first leap into a fairly unscheduled and diverse new life path that would include going back to University, exploring personal interests, spending way more time with the people I love and traveling with friends when possible.

The part that gives me intense anxiety is this:  My number is not that big, especially compared to other people's, and it is not all at my disposal right now (as it is currently invested in properties).  This is my situation and my plan in a nutshell: 

Liquid cash & easily accessible cash equivalents on hand:  $50,000
Current net worth:  $160,000 ($110,000 is paid off portions of my two properties)
Monthly budget:  $1,200 a month (this has been tested over the last few years and feels comfortable to me,  and I have no trouble sticking to it!!!  I feel I have everything I need and more...)
I have a bit of rental income on my second property each month, plus dividend income off some stocks and this equals a few hundred a month

With this I feel that I have enough cash to get through the next 4 to 5 years.  At around that mark I plan on selling one of my two properties so that I can continue my FI lifestyle....and when depleted again I will always have my other property still to sell.  I plan on selling a property when needed and pulling out the large chunk of equity, then putting 5% down in a new property so that I keep building equity, so I will replace my properties and always have two going at a time.

One interesting thing is that when I fill in my net worth spreadsheet each month my number now holds constant without my work paycheque included.....the amount of profit in the form of equity and passive income equals my $1200 monthly budget.  Not all of this is cash though, in fact, the non-cash mortgage paydown portion equals  around $900 and actual cash flows equal the other $300.  I can see that I am renewing my coffers each month through mortgage pay down and other streams, and my net worth calculation now remains a steady $160,000 each month without my work paycheque. 

I think the part that gives the anxiety is while my net worth holds constant now without work, my cash pool depletes until I sell a property.....I know some real estate investors live this way but for someone new to it like me, it feels terrifying somehow.

I can always pick up part time work or, god forbid, brief full time work, at any time I get into trouble.  I could also get a roommate and slash my living costs in half at any time as I have an extra bedroom and bathroom in my house.  Another option is moving in with my boyfriend and renting both my houses out.  So I do feel I have a lot of options if anything went wrong with my plan...

Which leads me to think my fear at this point is irrational......

All my friends tell me I am batshit crazy and am going to ruin my life by doing this!  But to me, I view it the other way...I actually feel I am SAVING my life.  I have had cancer twice by age 38 and the days of my life seem too precious to sell them for what I am selling them for!

Has anyone done this in a similar fashion?  Thank you to all for any feedback you may have :)  Dia

SimpleSpartan

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I'm no where near qualified to give solid advice on this forum, as I am a noobie myself. Couple things to think about though. Does your current job have benefits? Healthcare will be a big cost if you live in the U.S especially with the possibility of another potential cancer diagnosis (I'm so sorry!) Maybe you can check out the ACA thread. I personally wouldn't do it, 1200 a month is a tight budget when you wont be working and wanting to go out and do stuff, which costs $$$. Also how do you plan on paying for University? This is your life though don't let your friends decide how to live it. Heed their advice and make your own decision.

dinkhelpneeded

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Depleting principle to live on is a scary idea, thats why the 4% rule exists, and thats mostly why you are so afraid.

It seems to me that you mostly need a long vacation or sabbatical - can you wing that?

If you had better cash flow I'd be inclined to say yes, give it a shot, but right now, to me, seems like you'd benefit from a bigger buffer or a vacation/sabbatical or a new job+ time off before you start said new job!


onlykelsey

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I'm not sure about this.  Depleting your nest egg in a few years is part of your plan.  What's the plan in five years?  Re-enter the workforce in middle age and start from zero again?  You are also incredibly prone to disasters.  If one of your houses needs a new roof or gets destroyed, you are really up the creek.

Is there some sort of compromise choice, i.e. taking a long sabbatical, or getting a roommate and switching to part time?  Or can you do this for at least another year, and get  the roommate/move in with your boyfriend now?

I am all about taking long breaks from work, and I hope to take one in my early 30s, but I also plan on having at least 10x my annual spending liquid before I do anything (on top of my condo).

Cassie

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I think it looks too risky. Can you find a p.t. position in your field?  Is going to the university going to lead to a better paying job? How will you pay for this? 1200/month is not much $ and costs will go up plus bad things such as major expenses do happen.

ysette9

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To me this feels really scary and really risky. If I've read all your words correctly, you need $1200 a month to live on right now and you have a "few hundred" coming in without your job. That looks like a big gap to me that your nest egg of $50k isn't going to cover for the long term. It's fantastic that your spending is so low; the downside to that is that if you hit some bumps along the way, you don't really have fat to cut if you need to make your stash/income go further.

I agree with other posters that you would be much better off taking a sabbatical and reassessing. I don't know what your income or savings rate is, but with such a low base spend rate I would imagine it wouldn't take too much to get to the invested 'stash of $300k or so I would feel would be appropriate to be truly FI. You are on a great path but sound burnt out. Take a break but don't screw your future self by depleting your investments too soon.

Choices

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You've done a good job saving and lowering your expenses. What's your timeline for this break? Is it indefinite?

You mention University and travel, both of which cost money. Are these in your budget?

Is there any way to take a year-long leave of absence from your job to figure things out? You can always officially quit later if that's what you decide. For now, though, depleting your nest egg at such a young age seems like an awfully risky plan if you expect to live for more than 5-10 years. (not trying to be insensitive, but not sure where you stand with your health. If you're in full remission then congratulations! but that makes your timeline potentially 50+ years and totally untenable with your current savings and plan)

Do you plan to use your new education to go back to work?

ShortInSeattle

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Is your plan solid enough? I'd say no.

If you'd like to take a break, take a break. That's a viable option. But please don't fool yourself into thinking your assets will sustain you indefinitely. The math doesn't add up. Sorry.

SIS


frugaldrummer

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First - so sorry about the cancer diagnoses.  I understand why you feel you want to live your life to the fullest.  And I think if we root around in your numbers and think creatively there might be some way to free you up to do that.

On the practical side - can you give us some more information on your properties?  Are these houses or apartments?  What are the mortgages on them, the interest rates on those mortgages, and what is the rental income?  How about anticipated repairs (i.e., how old are the roofs, how much do you anticipate in maintennace costs etc, how much is property tax and insurance etc.?)  How long until those properties are paid off?

We need those numbers in order to give you sound advice. 
'
Also, I like the idea of taking a year sabbatical, then going back to work (maybe part-time).  There are ways to travel cheaply (check out www.couchsurfing.org ), and foreign countries where you could live quite nicely on less than $1200 a month.  How much could you rent out the property that you live in now for?  Would that additional rent boost your income to enough to live in a foreign country?  Would you consider that for a while? 

I'm not sure how university fits into all this. How would you pay for it?  Would it be with the goal of going back to work in another field?  If not, then why not just audit classes or take free classes for the fun of learning.

Do you have any hobbies that you enjoy that could bring in a little income?  Or would you be happy just doing a little side job like dog walking to bring in a little extra cash?  At your level of spending, just a few hundred extra could make the difference.

Also, definitely be careful about the insurance business. You cannot afford to be without really good health insurance.

It sounds to me like you may need to refine exactly what it is that you want, and then get creative about how to get there.  Is it that you don't want to keep working in a job you hate?  Or just that you want more free time to play?  Are you running FROM something or TO something?  If you could design your ideal lifestyle, what would it look like?

If you could get by until the properties paid for themselves, would you be set for life?   If so, can you find a way to enjoy the life you want to live while working part-time, maybe after a year of cheap travel?

frugaldrummer

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Since you haven't replied with any details yet, there's really not enough to work with here, but I'll just throw out a couple of hypothetical situations.  Since you said that getting a room mate could cut your $1200 living expenses in half, I'm assuming that means you could rent a room for $600/mo, or the whole house for $1200?

And you don't give any idea of how big your mortgages are, but since you have $110k in equity between the two, let's just say for the sake of illustration that you have 2 homes, each worth $110k, each halfway paid off. 

And since you said getting a room mate could cut your living expenses in half, I take that to mean you really only spend $600/mo and the other $600 is for the mortgage?

If we go by these assumptions:
 - you could move in with your boyfriend (I'm assuming this means you don't have to pay any rent?) and rent your house out for $1200/mo. Assuming your mortgage is $600/mo, that would generate the $600/mo you need to live.  I would then keep the excess rent income from the other property and the $2,000 per year that your $50,000 in liquid savings could generate at a 4% safe withdrawal rate and set that aside for repairs and vacancies in your rentals.  This is a bare bones plan and relies on the continuing relationship with your boyfriend and his good will not to charge you rent.  However, eventually your rental properties will be paid off and then you should have a nice income stream from the two of them.,

 - you could move in with the boyfriend and keep working for a while, putting all of your income into beefing up your savings for another year or two while living off $600 half of the rental income on your house.

 - you could get a roommate and put that extra $600 a month towards savings, and keep paying down your properties until the excess rent generated equals $1200 a month (keeping your $50,000 to cover repairs and vacancies)

 - you could sell one property, use that money to pay off your house, move in with your boyfriend and live off the $1200/mo rent from your house.

I have a feeling, from the slightly cock-eyed way you are looking at your rental numbers, that you may not have the best grasp on the true costs of owning a rental (not just mortgage payments and taxes, but about an extra 30% should be budgeted for repairs and vacancies in the long run.) If you're not accounting for this, then your extra rental may not actually be turning a profit yet.

Your goal should be to have at least one property that is generating enough cash flow every month to pay your living expenses.  How much are you making in your current job? 

ender

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I'm not sure about this.  Depleting your nest egg in a few years is part of your plan.  What's the plan in five years?  Re-enter the workforce in middle age and start from zero again?  You are also incredibly prone to disasters.  If one of your houses needs a new roof or gets destroyed, you are really up the creek.

Is there some sort of compromise choice, i.e. taking a long sabbatical, or getting a roommate and switching to part time?  Or can you do this for at least another year, and get  the roommate/move in with your boyfriend now?

I am all about taking long breaks from work, and I hope to take one in my early 30s, but I also plan on having at least 10x my annual spending liquid before I do anything (on top of my condo).

This is what I would be worried about in this situation. No backup plan with an already tight budget would have me worried.