Author Topic: When to indulge  (Read 2534 times)

AaronMN

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When to indulge
« on: June 17, 2014, 06:25:41 PM »
Hello all!  Looking forward to joining the community and any advice for my particular situation.


Ages:  Under 28 for myself and my wife

Income: We currently make ninety k before anything gets taken out.  1/5 of our income goes to 401k.

Fixed expenses:

Round to around $600 fixed costs per month for the year. (internet, electric, heat, phone, insurance)

Expected expenses: Van (when children) (8-10k, cash only), some small home projects (5k)  These would fall into our 1-5 year plan

Assets:

No debt.  Two vehicles and a small fishing boat paid for.  Home is paid for - value around $140k. 

Background:

Realistically, when is too early to start thinking about indulging in a childhood dream?  Specifically, a lakeside cabin?  I would initially be looking for something under 100k-120k and to finance.  This would be our first major debt, so we are very cautious about this line of thinking.  However, I am leery of the stock market.  I see this cabin as another avenue to save for retirement via real estate, while enjoying the place in the process.  I know we could add more to our 401k, or start a Roth, but I have issues with too much being in the stock market, and nothing to show for it if (when) she goes down again.

Would appreciate any thoughts or comments!

Thanks for reading,

Aaron

 

MDM

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Re: When to indulge
« Reply #1 on: June 17, 2014, 07:23:18 PM »
Depends on your personal definition of success.  If success = FIRE, then delay the cabin until you can afford it and still be FI.  If success = lakeside cabin, then go for it and accept the consequent delay in FIRE.

You might run the numbers both ways (e.g. using cFIREsim): 1) not buying the cabin, and 2) buying the cabin and assuming 0% increase in cabin value but incurring the interest cost to finance.

Then, the choice is yours....

arebelspy

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Re: When to indulge
« Reply #2 on: June 17, 2014, 07:32:06 PM »
I see this cabin as another avenue to save for retirement via real estate

It's very likely not, it's a liability.  Many people trick themselves into thinking their vacation home is an asset, when it probably isn't, or, at best is a very poorly performing one.  Don't fall into that trap.

I have issues with too much being in the stock market, and nothing to show for it if (when) she goes down again.

What you have to show for it is the ownership in companies.  You still own the same number of shares when the paper value goes down.  That's just an opportunity to buy more ownership cheaply.  :)

I think you need to do some reading/education before doing either option (buying a vacation home or investing more in the stock market), personally.

To answer the specifics of the question (cabin), I think practicing some deferred gratification would be the way to go here.  Invest the money you'd put down on the property into a good investment that will grow at a good rate and use the eventual proceeds to purchase the place in cash.  Rent it out (as the rentee, not owner) in the meantime if you want to experience using it.

To answer the general underlying question (when do you indulge) - you indulge whenever it's worth it.  Calculate if that is the best use of your money.  Compare how it will delay your FI.  Look at what else you could do with those funds.  Decide if, even if it's a bad investment, it's ultimately worth it anyways, and how long you're willing to delay waiting on it.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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brewer12345

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Re: When to indulge
« Reply #3 on: June 17, 2014, 08:18:52 PM »

What you have to show for it is the ownership in companies.  You still own the same number of shares when the paper value goes down.  That's just an opportunity to buy more ownership cheaply.  :)


+1.

My 10 YO asked to learn about stocks, bonds and investing.  She is motivated and old enough to understand a lot of it.  I did not start explaining how index funds an brokerage accounts work.  I started (today) with a series of lessons on accounting.  Why?  If she cannot read financial statements, she will never understand that what you own is a piece of each individual business.

AaronMN

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Re: When to indulge
« Reply #4 on: June 18, 2014, 07:02:39 AM »
You guys are awesome - thank you for the food for thought.  I really appreciate the FIRE simulator - certainly lets me see what my potential avenues are.