A word with myself from 5 years ago

[maxpower]

I'd like to have a word with myself from five years ago.

Hi! It's me! The you that you imagined to exist five years down the road from where you stood then, agonizing over what to do about construction plans, investments, jobs, your time, your life, my life (click here to read what me 5 years ago had to say).

Wouldn't you have loved for me to drop in and chat with you on that rainy April day? Maybe you wouldn't have wanted specifics, maybe just a few words of affirmation. "Stay the course" or some such?

Aw well. It doesn't work that way. You had yet to dream me into existence. But I'm here now, and I thought I'd take a moment to tell you how we've done. I've done my best, but I'm afraid we're not quite where you had hoped we would be. it's a good place, but I don't think it's a "quit working for other people entirely" place... I could be wrong (some things never change!).

So, some data:
You now have $790,000 in your investment accounts instead of the $230,000 you had back in 2019. You did not contribute $70,000 per year after paying for the garage as you had predicted. You contributed between $41,000 and $55,000 per year.

Your wife did not quit her job. This has not been easy, but it has gotten better. She has gone to therapy, gone on anti-depressants, bio-identical hormone replacement therapy, and read a lot of books. You have also gotten much better at hearing what she needs and acting on it. It's still a grind, but it's not as horrible as it was. She has also tried repeatedly to land other employment, with no success.

You built the garage... and more. It has a fully livable studio apartment above it, complete with kitchenette, and bathroom which contains a nice walk-in shower. I don't know how much it cost. It was way more than you thought... again. All the same, it's paid for. You use the studio for your morning shower and to house the occasional guest. That's about it.

You changed careers. You had an idea for a business and went to work for a company that did what you wanted to do so you could learn to do it yourself. You launched your own business about two years ago and began phasing out the work you were doing for the other company. You brought in $10,000 in revenue on year one and about $35,000 so far this year. You have about $25,000 of that cash in a high yield saving account that you are squirreling away for further business investment. You are still working part time for the other organization in your off season.

One of two of your kids has started college. It costs $32,000 per year. You didn't plan for that. You had never made up your mind how to handle it. You are fortunate. Your kid is receiving massive help from extended family along with some loans and working. This situation has so far not impacted you financially.

Here's some data about your spending:
2019: $5,100 per month $61,200 per year
2024: $6,400 per month $76,800 per year

That a 22.6% increase or 7.5% increase per year

The actual rate of inflation over the last five years has been 4.2% per year, so your personal lifestyle inflation amounts to 3.3% per year. A lot of that 3.3% have been vacations that your wife has made clear are good for her soul.

Though your wife has been kicking ass at her job, becoming the manager of an entire department, she is not being compensated in line with those recognized achievements. The company is not doing great, so she has only secured raises amounting to 2.3% per year.

There could always be more data, but I think that gets at the big picture. So what do you think? I suppose that question puts the impossibility on my side of the temporal gulf, hu? Well, I can at least tell you what I think. I think we've done a pretty damn good job! Though we are not "retired," we are more flexible now than we've ever been.

We've all been working hard and growing the whole way. We've been growing our professional development, facing deep relational challenges, and coming to grips with a new phase of life that we call "middle aged." We've even started going to the gym. Yep! YOU! lol! It's been great.

The business you've literally just started is thriving! There's all kind of room for growth, and here's the best part: you LOVE IT! You wife even helps out occasionally and has expressed interest in being a part of it. What does that mean for this whole picture?

All the same, there's lots of room for improvement. Most notably, your wife still wakes up everyday and returns to the salt mines. That is THE main threshold we have yet to cross. She has told you that she is committed to working there another two years. The goal would then be to get my business up to a level that between it and our investments we could make that a comfortable reality.

You continue to vacillate about deploying your capital for further business investment. I think you're still learning and want to make sure that you are pulling the trigger on something you understand. I don't fault you for it. You have a plan to further expand your operation in a more modest way to grow next year without the large cash outlay.

Do you want to Airbnb out the studio? Would it be worth it? Would people treat the space with respect? Would it at least cover vacation costs?
It sure would be nice to see the lifestyle creep number start to go the other direction a bit now that we have one less mouth to feed. You are also on the cusp of actually finishing the remainder of the house projects and living in a fully finished structure. That, I hope, should also help.

So... we're not done yet. Are we playing the "one more year" or "just a little more" game? I don't think so, but now that I'm 45, the question becomes more salient every day. Maybe the version of you that I dream up will come back and let us know how things are going in a couple years?

[Laura33]

Couple of basic questions:

1.  What's the net profit from your business?  The revenue increase is great, but the $64,000 question is how much did you have to spend to get there, and how much more will you need to spend to hit your target of enough income to support your lifestyle? 

2.  What are your plans for college funding for #2 (and for #1 if current external funding goes away)?  You didn't plan for #1 because you didn't really know what you were doing, and you got lucky.  Now you know what you need to know to plan for #2, and you cannot count on being so lucky again. 

Overall, yes, you're in a much better position than 5 years ago, with a much bigger cash cushion.  Congrats on that.  But there are a few things that worry me.

First, the head-in-sand thing.  Seems like you were worried about how much college would cost, but instead of making your best guesstimate and figuring some savings is better than nothing, you ignored it until it hit you in the face.  You were worried about the cost of an addition, even though you had plans to keep the costs down and do a lot of work yourself, and then you ended up doing even more than you planned, for some additional cost that you have not even tried to calculate.  Yes, shit happens.  But you can't put yourself in the best position to manage that shit if your natural inclination is just to ignore it when it's outside your knowledge/comfort zone.

Second, the lifestyle inflation.  You can afford your current lifestyle only because your wife is still managing in that same job that was making her miserable 5 years ago.  I'm really glad that you guys have found ways to make that more tolerable for her.  But your life and plans shouldn't be focused around, "ok, well it's not actually going to kill her."  She has already sacrificed 5 years of her life to a job she hates so you guys could sustain your lifestyle and pay for the addition, and now she's planning on doing that same thing for 2 more years -- and that's assuming your business picks up enough to take up the slack?  How is that ok?  Or is she just not as miserable as you thought she was 5 years ago? 

I think that is the context to focus your lifestyle inflation around.  It's not that you are postponing FIRE.  It's that when you increase your lifestyle by $15K/yr, that's $375K more that you need to save to maintain that lifestyle, which is like 7 years of additional savings at your current savings rate -- which translates to 7 more years of needing your current level of income to maintain that savings rate.  And if your business doesn't take off to the point that you match your wife's pay, how do you bridge the gap?  Answer:  she probably continues to work X more years, because she knows that's the only way to get there.

And my final big-picture thought:  spending on your house is consumption, not investment.  Yeah, maybe you might get more out when you sell it -- but unless you plan to sell and downsize to fund your FIRE plans, none of that "investment" helps one bit.  Instead, the more you expand your home, the more your utilities go up, the more furniture you need to fill it, and the more you have to maintain -- and the less you have to put toward your FIRE plans.  It's great that it's all paid for, sure.  But imagine where your investment accounts would be now if you had put that unknown-but-large sum into investments instead. 

I figure this all sounds unduly harsh, and I don't actually mean it that way.  It seems like you guys have done a good job of not living up to your wife's income, and on maintaining a good level of investments.  But boy, that 7.5%/yr personal inflation rate worries me, as does the significant shortfall in predicted annual savings over the past 5 years, and the lack of plans for college costs -- because I am concerned that your wife will just decide to fix the shortfall by giving up more of her life to a job she hates.  You have the building blocks of a really solid future here.  But you need to dive in and figure out a plan to addressing some of the hard things, like avoiding additional lifestyle inflation, paying for college, reasonable expectations for growth of your business, backup plans if that doesn't go as well as you hope, etc.

[slugsworth]

Congrats on your success. I wanted to say broadly thanks for posting, I think seeing how everyone's lives have changed is a good thing. I think we all succeed in some levels and not on others and that's life.

Regarding your wifes work, if you weren't saving $40-50k a year and rented the studio via Airbnb could she quit? There might be cost savings if she wasn't stressed and potentially dodged a commute.

In any case, congrats again on your success and thanks for sharing.

[maxpower]

Couple of basic questions:

1.  What's the net profit from your business?  The revenue increase is great, but the $64,000 question is how much did you have to spend to get there, and how much more will you need to spend to hit your target of enough income to support your lifestyle?

Right. Good question. The profit has been the $25,000 I've got saved away. I haven't been as detailed as I'd like with the precise ratios between startup costs and ongoing consumables. This is partially "head in the sand" and partially just trying to keep my head above water with the incredible number of things I'm having to learn to pull this off. I am able to meaningfully expand by about another 100% with minimal additional cash outlay. To go much beyond that will require a partial relocation and anywhere between $40,000 to $100,000 depending on the level of control I want over certain variables.

It's worth mentioning, I think, that this venture is something I plant to do for long term. I'm not entirely sure how to think about it from a FIRE standpoint. Do we both keep up the other employment from others and keep sinking cash into the investment accounts until we don't need the business and can just do it without worrying about what happens if I get sidelined for one reason or another? Do we include the income that the business produces with what we could begin drawing from our investments and set off on our new life? And if so, when? These are the questions I ask myself.

2.  What are your plans for college funding for #2 (and for #1 if current external funding goes away)?  You didn't plan for #1 because you didn't really know what you were doing, and you got lucky.  Now you know what you need to know to plan for #2, and you cannot count on being so lucky again.

Hope that we are so lucky again, or just keep working. I'm not sure what else we can do. We have accounts that we can pull from if we need to. 

First, the head-in-sand thing.  Seems like you were worried about how much college would cost, but instead of making your best guesstimate and figuring some savings is better than nothing, you ignored it until it hit you in the face.  You were worried about the cost of an addition, even though you had plans to keep the costs down and do a lot of work yourself, and then you ended up doing even more than you planned, for some additional cost that you have not even tried to calculate.  Yes, shit happens.  But you can't put yourself in the best position to manage that shit if your natural inclination is just to ignore it when it's outside your knowledge/comfort zone.

Kinda sorta. We didn't do nothing. I just didn't include it in the optimistic numbers I was using to dream about FIRE. I had hoped that extended family would lend a hand, but if they didn't, we have a sizable amount of cash stashed in taxable accounts. The amount of help that was offered also influenced the college chosen. All the same, relying on optimistic numbers for future planning is not without consequences.

Second, the lifestyle inflation.  You can afford your current lifestyle only because your wife is still managing in that same job that was making her miserable 5 years ago.  I'm really glad that you guys have found ways to make that more tolerable for her.  But your life and plans shouldn't be focused around, "ok, well it's not actually going to kill her."  She has already sacrificed 5 years of her life to a job she hates so you guys could sustain your lifestyle and pay for the addition, and now she's planning on doing that same thing for 2 more years -- and that's assuming your business picks up enough to take up the slack?  How is that ok?  Or is she just not as miserable as you thought she was 5 years ago?

That's a zinger of a paragraph! We had to sit down and talk about that one. I think there's been an high level shift in our relationship as it pertains to FIRE. In the past, I was really the one pushing for it. We were not mutually on board. As such, I was always the one running the numbers, trying to be as frugal as possible, and bristling at the idea of getting on a plane to travel, or hire someone to clean the house while we both worked. As a result, she felt like I was always trying to take life and comfort from her. Not a great recipe for a warm relationship.

As these five years have gone on, I have had to learn to be less rigid in many areas of my life, to stop trying to run every decision through a spreadsheet. The results have been two-fold: a warmer relationship, and lifestyle creep. Her words now: "If I have to work longer to go on the trips, to have the tastey meals, to not have to spend my weekends cleaning the house, then that's what I choose." Her job stress has improved significantly over the last couple years. It's less toxic and more just a job that requires the exchange of one's time and freedom for money.

This last year in particular has been huge. During the time that I've been running my own business instead of working for the other organization, I've been home more, helping out, finishing house projects, cooking, running kids to appointments, going to the gym with her, etc. She's loved it (her words).

All the same, I can't believe how much we are spending per month. We used to live off of $25,000 per year back in the early 2000s. But as I go through our expenditures on Personal Capital (or "Empower" as the rebrand goes... Man I had the Empower rebrand! It's like Twitter becoming "X"!), nothing super obvious jumps out at me (with the exception of going out to eat and travel). I'm sure this could be improved, but I need to take care about how I go about that (as noted earlier).

I think that is the context to focus your lifestyle inflation around.  It's not that you are postponing FIRE.  It's that when you increase your lifestyle by $15K/yr, that's $375K more that you need to save to maintain that lifestyle, which is like 7 years of additional savings at your current savings rate -- which translates to 7 more years of needing your current level of income to maintain that savings rate.  And if your business doesn't take off to the point that you match your wife's pay, how do you bridge the gap?  Answer:  she probably continues to work X more years, because she knows that's the only way to get there.

Right. These are sobering thoughts. On the other hand, I'm not sure how committed to a pure version of FIRE we really are anymore. We both seem to be leaning more in the direction of transitioning to meaningful, self-directed work for the next chapter of our life rather than simply living off of investments. This extends the runway for our investment portfolio to grow. This is where some creative spreadsheet scheming would come into play. I confess I haven't done that yet. What I want to know is when it makes sense for her to comfortably transition from working for her company to working for us. I think that's the big case study question for us at this time.

And my final big-picture thought:  spending on your house is consumption, not investment.  Yeah, maybe you might get more out when you sell it -- but unless you plan to sell and downsize to fund your FIRE plans, none of that "investment" helps one bit.  Instead, the more you expand your home, the more your utilities go up, the more furniture you need to fill it, and the more you have to maintain -- and the less you have to put toward your FIRE plans.  It's great that it's all paid for, sure.  But imagine where your investment accounts would be now if you had put that unknown-but-large sum into investments instead.

True to a point. And here's the point: I've run two businesses out of that new space that I would not have been able to do otherwise. I've also been able to use that space to continue finishing our primary dwelling myself instead of hiring a contractor. Finally, the studio space is ripe for income generation should we choose to do that. But you are right that in many ways that addition did not help the FIRE plans. And I suppose this once again shows how our commitment to FIRE has gotten less rigorous over time.   

I figure this all sounds unduly harsh, and I don't actually mean it that way.  It seems like you guys have done a good job of not living up to your wife's income, and on maintaining a good level of investments.  But boy, that 7.5%/yr personal inflation rate worries me, as does the significant shortfall in predicted annual savings over the past 5 years, and the lack of plans for college costs -- because I am concerned that your wife will just decide to fix the shortfall by giving up more of her life to a job she hates.  You have the building blocks of a really solid future here.  But you need to dive in and figure out a plan to addressing some of the hard things, like avoiding additional lifestyle inflation, paying for college, reasonable expectations for growth of your business, backup plans if that doesn't go as well as you hope, etc.

Laura, your response was very direct, but I don't take it as unduly harsh. I appreciate the time you took to respond. It's running our situation through minds like yours that made me want to take the time to post and update in the first place, so thank you!

[maxpower]

Congrats on your success. I wanted to say broadly thanks for posting, I think seeing how everyone's lives have changed is a good thing. I think we all succeed in some levels and not on others and that's life.

Regarding your wifes work, if you weren't saving $40-50k a year and rented the studio via Airbnb could she quit? There might be cost savings if she wasn't stressed and potentially dodged a commute.

In any case, congrats again on your success and thanks for sharing.

Thank you for that. You are most welcome! The Airbnb thing an interesting suggestion that I would have to look into more. So far we have kept that in our back pocket, but I really should at least some potential numbers around it. Thanks again!

[Laura33]

It's worth mentioning, I think, that this venture is something I plant to do for long term. I'm not entirely sure how to think about it from a FIRE standpoint. Do we both keep up the other employment from others and keep sinking cash into the investment accounts until we don't need the business and can just do it without worrying about what happens if I get sidelined for one reason or another? Do we include the income that the business produces with what we could begin drawing from our investments and set off on our new life? And if so, when? These are the questions I ask myself.

Second, the lifestyle inflation.  You can afford your current lifestyle only because your wife is still managing in that same job that was making her miserable 5 years ago.  I'm really glad that you guys have found ways to make that more tolerable for her.  But your life and plans shouldn't be focused around, "ok, well it's not actually going to kill her."  She has already sacrificed 5 years of her life to a job she hates so you guys could sustain your lifestyle and pay for the addition, and now she's planning on doing that same thing for 2 more years -- and that's assuming your business picks up enough to take up the slack?  How is that ok?  Or is she just not as miserable as you thought she was 5 years ago?

That's a zinger of a paragraph! We had to sit down and talk about that one. I think there's been an high level shift in our relationship as it pertains to FIRE. In the past, I was really the one pushing for it. We were not mutually on board. As such, I was always the one running the numbers, trying to be as frugal as possible, and bristling at the idea of getting on a plane to travel, or hire someone to clean the house while we both worked. As a result, she felt like I was always trying to take life and comfort from her. Not a great recipe for a warm relationship.

As these five years have gone on, I have had to learn to be less rigid in many areas of my life, to stop trying to run every decision through a spreadsheet. The results have been two-fold: a warmer relationship, and lifestyle creep. Her words now: "If I have to work longer to go on the trips, to have the tastey meals, to not have to spend my weekends cleaning the house, then that's what I choose." Her job stress has improved significantly over the last couple years. It's less toxic and more just a job that requires the exchange of one's time and freedom for money.

This last year in particular has been huge. During the time that I've been running my own business instead of working for the other organization, I've been home more, helping out, finishing house projects, cooking, running kids to appointments, going to the gym with her, etc. She's loved it (her words).

All the same, I can't believe how much we are spending per month. We used to live off of $25,000 per year back in the early 2000s. But as I go through our expenditures on Personal Capital (or "Empower" as the rebrand goes... Man I had the Empower rebrand! It's like Twitter becoming "X"!), nothing super obvious jumps out at me (with the exception of going out to eat and travel). I'm sure this could be improved, but I need to take care about how I go about that (as noted earlier).

I think that is the context to focus your lifestyle inflation around.  It's not that you are postponing FIRE.  It's that when you increase your lifestyle by $15K/yr, that's $375K more that you need to save to maintain that lifestyle, which is like 7 years of additional savings at your current savings rate -- which translates to 7 more years of needing your current level of income to maintain that savings rate.  And if your business doesn't take off to the point that you match your wife's pay, how do you bridge the gap?  Answer:  she probably continues to work X more years, because she knows that's the only way to get there.

Right. These are sobering thoughts. On the other hand, I'm not sure how committed to a pure version of FIRE we really are anymore. We both seem to be leaning more in the direction of transitioning to meaningful, self-directed work for the next chapter of our life rather than simply living off of investments. This extends the runway for our investment portfolio to grow. This is where some creative spreadsheet scheming would come into play. I confess I haven't done that yet. What I want to know is when it makes sense for her to comfortably transition from working for her company to working for us. I think that's the big case study question for us at this time.

And my final big-picture thought:  spending on your house is consumption, not investment.  Yeah, maybe you might get more out when you sell it -- but unless you plan to sell and downsize to fund your FIRE plans, none of that "investment" helps one bit.  Instead, the more you expand your home, the more your utilities go up, the more furniture you need to fill it, and the more you have to maintain -- and the less you have to put toward your FIRE plans.  It's great that it's all paid for, sure.  But imagine where your investment accounts would be now if you had put that unknown-but-large sum into investments instead.

True to a point. And here's the point: I've run two businesses out of that new space that I would not have been able to do otherwise. I've also been able to use that space to continue finishing our primary dwelling myself instead of hiring a contractor. Finally, the studio space is ripe for income generation should we choose to do that. But you are right that in many ways that addition did not help the FIRE plans. And I suppose this once again shows how our commitment to FIRE has gotten less rigorous over time.   

First, thank you for reading my comment in the spirit in which it was meant.  And a lot of the things you've said -- particularly those I've bolded -- are absolutely key.

Really, who cares about purity of theory?  The point is figuring out what works for both you and your wife -- and those are not going to be the same thing.  It sounds like your wife is much happier now, because you've (1) stopped nagging about spending money on the things that she needs to make her life happier, like a house cleaner, and (2) picked up a lot more of the keeping-life-going work now that you've stepped back from full-time work.  If you're both happy with that, then hallelujah -- just keep doing what you're doing.

When can your wife step back and work for your business instead of for someone else?  IDK -- nor can anyone.  Because no one knows how quickly your business will grow, or if it can ever reach the point of replacing the amount of income you need.  The best thing you can do is to spend the next two years focusing on growing the business, continuing to save, and tracking your spending carefully (both personal and business).  Then, by the time your wife is ready to quit the job, you have hard data about how much the business can bring in, what your lifestyle actually costs, and likely better information to assess future goals and prospects.

[Malum Prohibitum]

The profit has been the $25,000 I've got saved away. . . . I am able to meaningfully expand by about another 100% with minimal additional cash outlay. To go much beyond that will require a partial relocation and anywhere between $40,000 to $100,000 depending on the level of control I want over certain variables.

In two years your profit has been $25,000, and to do more than a ceiling of double that ($50k) you will have to relocate and invest $40-$100k?  Am I misreading that?