Author Topic: Reader Case Study – Should I stay or should I go?  (Read 3054 times)

Cowtown2011

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Reader Case Study – Should I stay or should I go?
« on: December 17, 2014, 04:35:37 PM »
Total Assets:

House     $   700,000
Portfolio $   450,000
Total       $1,150,000

Liabilities: None

Current expenses:
Food                                                            $              1,000
Utilities (gas, water, hydro)                    $                 250
Entertainment (internet, netflix, cell)    $                 100
Insurance (auto, home)                            $                 139
Taxes (property)                                    $                 208
Vacation                                                    $                 300
Automotive (gas, repairs)                    $                 100
Health (dental, supplements, other)    $                 100
Miscellaneous (clothes, alcohol, etc.)    $                 303
Total    Monthly expenses                        $                  2,500
Annual total                                        $                30,000
(yes, we have food spending issues)

Planning on moving to a lower priced city, so I will be swapping my $700,000 home for a $250,000 home. The net result will be a $900,000 portfolio which is 30 times my projected annual expenses after I step away from work. I’m struggling to decide whether is truly enough and if I should work one more year (OMY), I can think of several possible large expenses which may pop up in 2015 which would reduce our portfolio, such as fertility clinic costs (est. $10k), courses ($5k) on things I want to learn, vehicle ($5k-10k). Based on this, it’s tempting to work OMY and keep building up the portfolio.

Does anyone have any experienced making the decision to FIRE and at which annual expenses to portfolio ratio did you pull the trigger?

My worst case scenario is quitting my job and having to return to work in a few years to replenish the portfolio at a low paying job relative to what I’m making today. I tried to quit my existing job and even gave in my notice but they offered me a new role which I’m tempted to take due to the above issues. I can still walk away from the new role as I haven’t yet signed a new employment agreement; my conservative side is all for it but my gut tells it’s going to be a long year. My thought is to take the job and work OMY and get to portfolio which is 35x my expenses.

Thanks
Nick

Bob W

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Re: Reader Case Study – Should I stay or should I go?
« Reply #1 on: December 18, 2014, 09:56:46 AM »
Go my friend! 

A little help --- Your monthly food seems way,  way high.  Not sure of your family size but that would be enough to feed 10 people healthy food.  (I know you know this already)

You can reduce cable by going to an internet service for $40, add Roku and your good.  Get you some $10 phones. 

Your utes should go down to 120 with a smaller efficient house. 

So those add up to around $800 per month.

Then the big one is your house purchase.   I always suggest going with a low interest mortgage and investing the difference.   Since you have lots of investments you can weather any storms.

If you're borrowing 200 K at 4% and earning 9% on average over time --- your monthly difference will be another 800.

So that adds up to $1,600 a month in found money.   

You are well beyond FI my friend.   In my neighborhood $250K buys a relative mansion, so if your were willing to move to the Midwest of the US you could find a nice home in a sophisticated college town for around $125K.  It would be warmer too!

SugarMountain

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Re: Reader Case Study – Should I stay or should I go?
« Reply #2 on: December 18, 2014, 10:58:15 AM »
Does your Food budget include eating out or do you never eat out?

I don't see anything about home maintenance.  Maybe I'm jaded because the two houses are own are both 100 years old or older, but you are always going to have some level of home maintenance expenses.  Paint, carpets, roofs, and furniture all wear out eventually.  Even if you do something like amortize those expenses over 20 years, you should include them so you don't get a nasty surprise in 5-10 years.  Same with your vehicle.  If you are planning to buy a $5000 vehicle every 10 years or something, you are probably ok, but still I would think about what are some of the long term occasional expenses that you will have to pay over the next 50 years and are they in your plan?

I also don't see anything for income tax (you do have property taxes covered).  This is one of the things I am trying to model.  It's really easy to say, "I have $1,000,000 in my portfolio, therefore I'll have $40,000 to spend each year."  But in reality, you will have to pay taxes on that $40k.  I actually don't think people talk enough about the tax implications of the 4% rule.

Cowtown2011

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Re: Reader Case Study – Should I stay or should I go?
« Reply #3 on: December 22, 2014, 09:55:34 PM »
Thanks for the comments.
The food covers a family of three and yes I know our spending is extremely high but I had a hard time trying to reduce it. I doubt I can reduce our other categories since we live in Canada and I find utilities, etc. seem to run higher here versus the U.S.

I haven't included income taxes in my numbers which is likely an issue but think our tax bill would be below $1,000 per year based on tax calculators I've played around with. Most of our inevstments are in tax sheltered accounts and our taxable income would be fairily low.

I did not budget anything for property maintenance and that is something I should add.

Overall I'm still torn as to what to do, I guess I'm very conservative in nature and will likely work OMY. My friends think I'm crazy for considering not taking the job but they don't follow the MMM way of thinking.

Thanks again