1. Where is a good place to look at cutting expenses first? Our income is going up a lot in the coming years and we probably won't be doing drastic things like selling our house for a smaller one. I'm sure there are other, smaller things we can cut though that will gradually get us more in the frugality mindset
I haven't done a great job of tracking our expenses
2. Based on the numbers presented and the information above what should we assume our SWR is? I am thinking 6% or more. If we can get 10% passively on crowdfunded real estate investments even if inflation is high 6% seems safe. Thoughts?
3. I figure a $10k/month budget is definitely something achievable without sacrificing much on our standard of living. This would put our stache requirements at between $2M and $3M. The right number is really a function of the answer to Question 2 above. If we could bump it up to 7% the stache requirements drop to more like $1.7M. Not all of our net worth is tied up in income-producing assets so there may need to be some conversion here to make this math worth right....feel free to lecture me on this if needed
1. Reduce expenses (Probably the easiest; but it comes with trade offs)
2. Increase income (via business or other passive activities) and keep expenses level
3. Learn to invest the difference better than the 7.5% blended rate cited in the 4% SWR studies cited
What you wrote is true, but pretty much anyone can click the 'Invest' button on a crowdfunding site and get 10% passively if they just study hard money loans for a few days and have a reasonable amount of intelligence. You don't need to be a small business owner to do that.
2. Based on the numbers presented and the information above what should we assume our SWR is? I am thinking 6% or more. If we can get 10% passively on crowdfunded real estate investments even if inflation is high 6% seems safe. Thoughts?
"It seems reasonable to think that if you're able to get 2.5% or more (10% - 7.5% == 2.5%...OR, simply scale by your preferred asset allocation in these assets) yield from non-Wall-Street investments that you can simply increase your SWR as well by the same yield and thus change your divisor for the multiple of cash you need to be FI."
"For #3 if you're an accredited investor you can simply buy into a hard money loan on a crowdfunding site with 70% LTC or lower using an experienced operator and probably get north of 10%. I'm not sure why anyone would invest so much in Wall Street equities if they can get better risk-adjusted yields elsewhere."(Emphasis mine.)
There is a concept on here I have read about called "complainy pant syndrome" or some such. A not-too-distant cousin seems to be the "I can't do better than 7.5% on my portfolio so I will just punt and let Wall Street tell me what to do syndrome."
I for one don't plan on growing food in my back yard to save on groceries if I can simply study a bit and get better yield on my investments. Most of the folks on the forums with a modicum of intelligence should be able to do the same as well.
If you start with $1M and spend $60k/year. Over the first five years, you achieve an average return of 10%. If your sequence of returns is -70%, -35%, 0, 75%, 80%, you will have run out of money after a little over four years and be $54,600 in the hole after five years. With stocks and bonds we have data on both variability and sequencing of returns.
I don't know what the history of the website you are using (or are you developing it yourself? it wasn't clear from your first post) but given that the WORD crowdfunding didn't exist until 2006, that gives us an upper limit of a decade (likely much less) which isn't nearly enough to estimate risk. So on what basis are you making the bolded claim?
If we consider just from the origin of the term "crowdfunding" in 2006 to the present, the "average return" (terrible terrible metric) for the S&P 500 index has been almost exactly 10%.
This is where your post started getting a bit too troll-y. Good luck to you.
To take an extreme example of why this information is necessary:
If you start with $1M and spend $60k/year. Over the first five years, you achieve an average return of 10%. If your sequence of returns is -70%, -35%, 0, 75%, 80%, you will have run out of money after a little over four years and be $54,600 in the hole after five years. With stocks and bonds we have data on both variability and sequencing of returns.
Yup....I posted about our geometric average in my original post. See above.
I'm not sure how any of this really applies if someone is sending me a check each month and I don't need to sell the securities I purchase. The reversion cash flow will eventually return my original investment assuming the investment works out.
Efficient frontiers for portfolios are not really needed here. Yeah...I learned about all of that too in business school after finishing up with my engineering degree.
I do agree that active management is required to achieved above-completely-passive results. My whole point is that one can generate sooner FI by placing educated bets in things they know well. For me it is real estate. For someone else it may be corn futures or something else. Spending as much time and energy making your money work harder or growing your income is just as "optimal" as decreasing spending for those so-inclined. This seems like common sense to me.
Sol is a scientist. It seems to me he gets the scientific method of proving whether a hypothesis is true or false mixed up with the choices people make about living their lives. True or false (right or wrong) is not the appropriate standard there.
Sol is a scientist. It seems to me he gets the scientific method of proving whether a hypothesis is true or false mixed up with the choices people make about living their lives. True or false (right or wrong) is not the appropriate standard there.
I'm not even in this thread yet!
But I assume you've been following along in the other threads Orange has started, and with that context I'd be interested in your take on this issue. I feel like Orange has missed the point of the exercise we're all participating in. He's just the latest in a long line of new members who have shown up to say "spending more money is what makes me happy, and I'm willing to work longer in order to afford my bedpan and catheter." These folks don't understand the benefit of voluntarily working harder at some things as a means of self improvement instead of seeking gratification through mindless consumerism. They cannot see past their social conditioning to recognize what will really make them happy.
It's not a matter of right or wrong, it's a matter of personal happiness and this website espouses a particular flavor of pursuing that happiness. Orange espouses a different one. I'm sure there are other corners of the web where his message of mindless consumerism would be warmly embraced. This is not that corner.
Where on earth are you getting this "spending more money makes me happy?" There's literally nothing in this thread to support that, and isn't the subject of the thread at all.
The whole point of FIRE is to get to the point where you don't have to work or worry about finances. When I FIRE, I don't want to be busy managing a business. I want to spend that time pursuing interests I actually enjoy. And that's why I'm aiming to withdraw 4% or less which has a high success rate.
With your net worth, you could FIRE now if you truly wanted to. However, your expenses are astronomically high (more than 3X average household income). If those expenses are worth it to you, you'll have to keep working until you accumulate multiple millions in NW.
This isn't necessarily true. Investing in what you know can have pretty disastrous results, particularly if you're a fan of a specific brand and feel it has high upside potential and decide to throw all your eggs in one basket. The market doesn't always agree with your opinion or level of knowledge of a particular company. Which is why on average, active investment strategies yield less returns over long times (after fees) compared to passive investments in the market as a whole. The experts simply don't know what's going to happen, and experts often disagree with eachother. That represents the "market".
I'm not suggesting that a more active approach can't work, but I feel for most people it's probably best avoided because there's a more proven track record for passive investment options, more liquidity and transparency, and it's easier to forecast a retirement path without having to devote a whole lot of time to.Agreed on MOST people. This forum is chock-full of supposedly advanced investors though. What you wrote above, to me, is the soft bigotry of low expectations. The having to "not devote a whole lot of time to it" is laziness to me.
1. Grow your own food in the back yard and save a few hundred bucks a month.
what I won't be doing is sacrificing new business income to cut expenses when it IS SUBOPTIMAL to getting me to FI.
If your goal is to get to the finish line faster and it is worth the lifestyle tradeoff more power to you.
I'm sure there is plenty we can cut. The question is if we can truly cut things without sacrificing our standard of living.
Agreed on MOST people. This forum is chock-full of supposedly advanced investors though. What you wrote above, to me, is the soft bigotry of low expectations. The having to "not devote a whole lot of time to it" is laziness to me.
You're restating your fundamental misunderstanding of this website, again. It's not a lifestyle trade-off, it's a lifestyle improvement to stop wasting money on things you don't enjoy. Stop measuring your happiness in terms of dollars spent, and look at the actual happiness each activity or possession generates for you.
Yes. Yes you can.
Read the other thread, B. Mr. Orange is the latest in a long line of forehead-slapping disbelievers who want to argue that they need to buy lots of stuff to be happy.
-W
1. Grow your own food in the back yard and save a few hundred bucks a month. … Let's recognize the tax savings as well and round up to an even $3k/month, or $3600 annually. That's $60/hour for this activity; not bad
OR
2. Invest the same 60 hours/year managing one development project that yields $30k net profits. I'm not sure you need to be a rocket surgeon to execute on item 2. That's $500/hour
But, but...not everyone can do item 2 you say. Hogwash. Anyone with a bit of get-up-and-go can do this and any number of other small business activities and grow a business while keeping their focus on INCREASING INCOME and having expenses flat instead of cutting expenses. Seems pretty simple to me.
Agreed on MOST people. This forum is chock-full of supposedly advanced investors though. What you wrote above, to me, is the soft bigotry of low expectations. The having to "not devote a whole lot of time to it" is laziness to me.
You can participate in development projects with $25k or so. For crowdfunded HMLs you could invest as little as $5k.
Neither one necessarily requires being an accredited investor, but your choices are far fewer as a non-accredited.
The budget has been right there to pick apart for tens of thread entries. I'm all eyes.Ok, I'll bite.
Agreed on MOST people. This forum is chock-full of supposedly advanced investors though. What you wrote above, to me, is the soft bigotry of low expectations. The having to "not devote a whole lot of time to it" is laziness to me.
How is achieving a 7% real, after inflation return, considered low expectations? I find those types of returns to be superb when compounded over a long period of time. And for me, the liquidity, low cost, diversity, and ease in which I can regularly contribute fits my working lifestyle. With a business, as you mentioned, there's real concern of bankruptcy or regional market forces that are out of your control and can wipe you out. I'm not concerned about that at all, as my investments are spread out amongst a global market. My 4% safety withdrawal rate accounts for regular corrections.
I'm a full time electrical engineer in TX, like yourself, and have a pretty demanding job that consumes a lot of energy and time. It's not about being "lazy". If I had to devote my off-hours to business I'd have zero free time to pursue other interests.
You can participate in development projects with $25k or so. For crowdfunded HMLs you could invest as little as $5k.
Neither one necessarily requires being an accredited investor, but your choices are far fewer as a non-accredited.
Can you provide some links or some places to learn more? I'm always interested in learning about other investment options.
- At ~$1K/month for "bills/utilities", do you run a server farm for bitcoin mining?
- Your federal withholding seems low for your W-2 income. How much do you expect in itemized deductions, or other ways you reduce taxable income?We have some pretty elaborate entity structures to reduce taxes. In fact, today I found out our SoloK won't even help us much for 2014 (boo!) so we claim a lot of dependents to get our monthly withholding down lower. We generally owe money each year and pay in October to use the cash longer because I can generate yields higher than the penalties and interest the gov-mint charges.
You can participate in development projects with $25k or so. For crowdfunded HMLs you could invest as little as $5k.
Neither one necessarily requires being an accredited investor, but your choices are far fewer as a non-accredited.
Can you provide some links or some places to learn more? I'm always interested in learning about other investment options.
If you're accredited there are many good sites:
-Fundrise
-RealtyShares
-Patch of Land
-AssetAvenue
There are many more. We also run one, but I am not going to disclose it because I don't want this thread to seem like a commercial.
You can participate in development projects with $25k or so. For crowdfunded HMLs you could invest as little as $5k.
Neither one necessarily requires being an accredited investor, but your choices are far fewer as a non-accredited.
Can you provide some links or some places to learn more? I'm always interested in learning about other investment options.
If you're accredited there are many good sites:
-Fundrise
-RealtyShares
-Patch of Land
-AssetAvenue
There are many more. We also run one, but I am not going to disclose it because I don't want this thread to seem like a commercial.
And for the non-accredited? After all, that's the rub: if you're accredited and on this forum, you're probably already retired.
The budget has been right there to pick apart for tens of thread entries. I'm all eyes.
$2,407.56 Home
$942.57 Kids
$984.67 Bills & Utilities
$1,294.00 Food & Dining
$592.46 Auto & Transport
$268.62 Shopping
$759.37 Business Services
$67.26 Uncategorized
$497.45 Financial
$30.55 Education
$81.00 Health & Fitness
$140.42 Entertainment
$49.50 Fees & Charges
$92.27 Gifts & Donations
$13.69 Personal Car
$0.81 Pets
$280.10 Taxes
$335.11 Travel
And for the non-accredited? After all, that's the rub: if you're accredited and on this forum, you're probably already retired.
Bogleheads has some interesting comments:
https://www.bogleheads.org/forum/viewtopic.php?t=162319
The marketing material on those sites is laughable. Comparing S&P 500 returns starting at the peak of one of the worst bubbles to an ever inflating real estate bubble we've been in for the better part of a decade and a half.
I'll just stick to the REITs that happen to be a component in my index funds.
If your goal is to get to the finish line faster and it is worth the lifestyle tradeoff more power to you.
You're restating your fundamental misunderstanding of this website, again. It's not a lifestyle trade-off, it's a lifestyle improvement to stop wasting money on things you don't enjoy. Stop measuring your happiness in terms of dollars spent, and look at the actual happiness each activity or possession generates for you.
Example: I read stories to my daughter every night, and this makes me happy and costs nothing but my time. If I chose to work late to get a promotion at work, I might make an extra $20k/year but would have to give up story time. Since the extra $20k wouldn't actually change my life happiness in any significant way, but losing story time with my daughter would, I've decided not to pursue the promotion. The same logic applies to expenses I can cut, instead of income I forego. Focus on the important stuff.QuoteI'm sure there is plenty we can cut. The question is if we can truly cut things without sacrificing our standard of living.
Yes. Yes you can.
If you do a dual momentum index fund approach you could get the projected SWR to 10.
Get your family's spending more line with mine by cutting out that $30k in waste I highlighted above, and you're down around the $1m mark, less than you already have. You could be FI today just by aligning those first four categories I mentioned above with what my (very similar) family already spends.
If you subtract out your home expenses, taxes, business services that I'm assuming aren't personal expenses, and financial services that I'm assuming are transfers to investments, your actual daily expense rate is more like $5k/month, not the $11k you previously quoted us.
Even by traditional 4% SWR metrics, you should be able to support your current lifestyle with 1.25m and a paid off house, without making ANY changes to your extravagant spending. If you believe in your ability to sustain more than a 4% SWR (I do, though for different reasons) then your nut shrinks even further.Our house is pretty far from being paid off and I question the utility in paying it off if I can get better yields elsewhere. It would be nice to own something they can't take away though. In Texas your primary residence survives bankruptcy.
Get your family's spending more line with mine by cutting out that $30k in waste I highlighted above, and you're down around the $1m mark, less than you already have. You could be FI today just by aligning those first four categories I mentioned above with what my (very similar) family already spends.We'll easily top $1.25M very soon. I would be very surprised if we don't get there this year. With what is in our real estate pipeline I am projecting about $600k - $650k in profits from July of 2015 to July of 2016. Our projects are in Austin and the city has been booming of late; hopefully it will continue.
And for the non-accredited? After all, that's the rub: if you're accredited and on this forum, you're probably already retired.
... to hopefully increase living standards during FIRE.
4. Pay off mortgage for personal residenceFor debt, you may get a better answer looking at it with a different perspective;
5. Pay off debt on rentals
Regarding your goals, I'd say that, if you are confident in your business continuing to generate the kind of income that you've described, you should make the jump. I think that that's all it would take. If your wife wants to spend more time with the kids, she can do this. You are in a position that you should be willing to go for it. If you make some small steps, you should be able to control the safety of this move.