Basuragomi's journal

Where are you and where are you going?
basuragomi
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Joined: Tue Oct 15, 2019 3:13 pm

Basuragomi's journal

Post by basuragomi » Thu Oct 24, 2019 4:54 pm

Introduction

Been lurking these forums for a year or so, so I'd like to share my own journey!

I realized this year that I have reached a level of bare-bones financial independence on a 4% withdrawal rate basis - i.e. no vacations or expensive gifts. I also realized that despite being nominally a few years from fully funding my lifestyle from investments, I didn't have a concrete plan to transition to early/semi-retirement. This journal is intended to help me organize my thoughts and strategy and hopefully get some feedback from more experienced people.

I've been working and investing since university summer jobs about a decade ago. Lived with family for half a decade after graduating with a great job (then I moved out, got married, and now rent with my wife), don't own a car, don't drink or do drugs, and live a simple life. I recognize that the support from my wonderful wife, family (lived with family for cheap, having $10k/yr tuition fully paid for, frugal friends), my genetics and simple luck have given me incredible privilege that makes FIRE attainable for me.

My father retired at around 50 and that was some serious inspiration. I like working in my field, but the conventional 40+ hour week and fly-in/fly-out work is really exhausting. I have about 2 hours a day on average to focus on my personal projects. I want to build a life where my work and my play become largely indistinguishable from each other, or at least where I get far more of the latter than the former.

Vital statistics
Location: Toronto, Canada (high cost of living, in theory)
Age: 29
Life expectancy: 90, if I'm lucky
Family status: Married, no kids

Employment income: $93k (pre-tax, all values in CAD)
Annual expenses: $26k
\ $18k rent, utilities, food, transportation, etc.
\ $8k tourism, gifts, other strictly unnecessary stuff
Net worth: $495k, all equities & cash
\ $100k RRSP (like a 401k)
\ $70k TFSA (like an IRA, tax-free)
\ $310k after-tax brokerage accounts
\ $15k cash/working capital/emergency fund

Goals
- I want to stop working full-time before or during 2023 (33 yo) with a 3-3.5% withdrawal rate
- I want to stay up-to-date in my profession at least for the next decade
- I don't want to "serve someone else's vision" at work more than 5-10 hours a week on average while semi-retired
- I want to cover my travel and luxury expenses via employment income
- I don't want to work a part-time service job, though I'm fine with taking minimum wage.

Plan
1) Finish getting a CFA designation (likely finished around 2021). It is not necessary for my current work and I already am a professional engineer, but I think it would give me the ability to easily find work as a mining analyst with the various banks and research firms in the city.

2) Go back to school and get a Master's degree (part-time or full-time, 2022-2023?), then try to join a consulting firm. There is a serious deficit of statistical literacy/rigour in this field. I think this is an area where I can really distinguish myself and improve the standard of work in my field. Consulting work is also incredibly feast-or-famine and I think on average it would meet my workload and income goals if I worked as a kind of backup. A Master's degree is the standard qualification for consultants here.

3) Once my current income ends, start drawing down my RRSP over 40ish years - basically a small synthetic annuity. I figure I can get out about $10k/year to minimize the tax burden and still meet my draw-down goal. Between this and work I will hopefully not start withdrawing from any other assets for a decade or more.

4) Convince my wife to retire early. We have largely separated finances. She has an excellent pension and is in about the same position financially as myself, but won't be eligible for the pension until 2050 or so. She is ~2 years away from hitting a 4% withdrawal rate. She wants to retire early, but has no firm plans.

Challenges
- Actually being employable in semi-retirement. There's no reasonable guarantee of achieving the role I want. This is probably my biggest concern!
- I will have to change jobs within a year as this company is foundering. Getting a job with similar pay may require relocation.
- Being psychologically able to be semi-retired. I am a workaholic. I'm unsure if I can control this part of my personality. I might just be trading stable full-time employment for the exact same life with lower pay and more uncertainty.
- Keeping my wife happy. I will probably take over almost all household tasks and keep my contribution towards shared expenses equal if I retire or semi-retire before her. But I worry that she might develop resentment, lose respect for me, or feel that she is being treated unfairly. I want her to be optimistic and happy about our future!
- Additional expenses in retirement. Besides private health insurance, I realize that full-time work sucks up the majority of my productive output. I don't want to retire just to realize that I've limited myself to sitting around the house instead of sitting around at work.
- Socializing as a very early retiree.
- Failing to get a graduate degree or certification. I might not give a damn at that point if my withdrawal rate is low enough. I don't know if retiring and not formally doing anything will make me feel fulfilled, and I'm not 100% sure that my plan will either.
- Quality of life. My expenses are kept low by being able-bodied and young. If I become disabled or chronically ill, my expenses will likely go through the roof even with insurance. I have no idea how to judge the risk or cost of this happening.
- Buying a place to live. Right now the idea is financially insane. But one day it might be necessary, which would consume a large chunk of my liquid assets and potentially force me back to work.

Conclusions
- I am not very concerned about the financial side of things. Even without semi-retirement I am in a pretty good financial position.
- I don't know how I behave without steady work. The idea of taking a sabbatical then returning to work is frankly scarier than retiring in full, and I have no idea if any of my plans to go into consulting/contract work are viable. I worry that I'm already losing my willingness and ability to perform at work.
- I don't know how much of this plan is hedging bets, how much is pure egotism, and how much is actually necessary. I don't think I have a feasible way to judge this by myself.
- I don't think I'll feel secure enough to truly do "nothing" employment-wise until I hit a 2% withdrawal rate, but I also know I probably won't stick it out and grind long enough to hit that point.

Next steps
Thank you for taking the time to read through this! My next big entry will likely be one of those nifty TTM expense/income/net worth graphs - I've been diligently tracking my expenses for about 4 years now but never had the motivation to analyze the data in that way. Maybe promising it to internet strangers will help.

classical_Liberal
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Re: Basuragomi's journal

Post by classical_Liberal » Thu Oct 24, 2019 5:13 pm

Welcome! I think you are focusing on the correct issues. Money is basically a solved problem for you, and it's obvious you still have, at least some, interest in your job/employment (ie not in brown/burn out). So it's unlikely you'll shut of the income stream completely in the near future.

Most of your big concerns seem pretty standard for those of us in semi-re mindset. Significant other, employability, socializing, internal motivation requirements, health, these are par for the course. The fact you're addressing these vs hyperfocusing on Finances and SWR tells me you're in the right mindset. Once you start experimenting and coming to your personal conclusions with these issues, then you'll be set. My only advice is that if you are unable to address these while working full-time (due to energy or time constraints) it's better to do a trial run of semi-RE and work on them than it is to muddle along in status quo. Personally, I was the type of person that could only go so far addressing these issues without moving on. Although, I do realize some people are better at accomplishing these things while working FT than I was.

basuragomi
Posts: 26
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Re: Basuragomi's journal

Post by basuragomi » Mon Oct 28, 2019 5:07 pm

It's good to hear that I've got my head in the right space from someone living it. I'm at the age where my parents' social circles are starting to retire en-masse and many of them really seem to have an identity crisis going from 100 to full stop. It seems that not getting these issues sorted out can be more financially damaging than retiring is!

If I found a semi-RE compatible job at this point I would take it. I've spent some time thinking about if fly-in/fly-out jobs would work as they are more abundant. A typical rotation is two weeks on (12 hour days), two weeks off. Trying to cram a social life into the limited time off, decompressing and catching up on deferred maintenance seems to eat up those two precious weeks (it certainly did back when I was working 4 on 2 off). There is also no flexibility at all, but still, two continuous weeks off...

Adamski
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Re: Basuragomi's journal

Post by Adamski » Fri Nov 01, 2019 9:44 am

Welcome, nice write up and looking fwd to the graphs!

Have you thought about moving to another cheaper Canadian city, now you have hit 4% swr and you could buy a cheap home and could up your lifestyle in ER?

Nuuka
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Location: Europe

Re: Basuragomi's journal

Post by Nuuka » Fri Nov 01, 2019 10:18 am

Would it be possible to study for master’s degree while working part-time?

giskard
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Re: Basuragomi's journal

Post by giskard » Fri Nov 01, 2019 10:37 am

basuragomi wrote:
Thu Oct 24, 2019 4:54 pm
- I don't know how I behave without steady work. The idea of taking a sabbatical then returning to work is frankly scarier than retiring in full, and I have no idea if any of my plans to go into consulting/contract work are viable. I worry that I'm already losing my willingness and ability to perform at work.
I have not been working for a month now, the intention was a "mini-retirement" and then getting a job again at some point. I was really worried about how I would handle things, but I have actually been super heads-down working on a business and things are starting to pay off. I never want to go back to doing a 9-5 and I feel more motivated than ever but yeah I was really worried when I was just starting off. Who knows though, in six months things could be different.

I wonder if we should start a master-mind group for ERE people that quiting work but want to stay active on some projects? I mean, that is kind of what these journals are for but maybe something more structured would be useful as well.

basuragomi
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Joined: Tue Oct 15, 2019 3:13 pm

Re: Basuragomi's journal

Post by basuragomi » Thu Nov 07, 2019 3:30 pm

Graphs!

Income and expenses (click for big):
Image
- Income to the left, expenses to the right.
- 4% withdrawal rate to the right to show theoretical buying power vs. spending.
- I put it horizontally instead of vertically like I've seen others do. I find it's easier to gauge relative sizes in a L/R mirror rather than U/D.
- Horizontal orientation also puts the most recent date on top instead of to the right. More intuitive IMO.
- I didn't include unrealized investment gains in income as it would completely swamp any other income. It would also sometimes be negative.
- I intentionally cut down the horizontal axis and made it symmetrical. Eventually the income bar should be smaller and it's easier to gauge relative sizes when the 0 is right in the middle.

Last 12 months:
Image
- The big jump in April spending was me paying fees to acquire a professional designation.
- Now that our wedding is largely gone from the TTM spending records, things look a lot nicer spending-wise. I made an infographic I made regarding our wedding costs that I will post later.

Net worth:
Image
- You can see pretty clearly where I started working a "real" job near the end of 2012.
- I'd never made this graph until about a week ago and was pretty stunned. It really felt like I was accumulating far less than the graph indicates.

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Thu Nov 07, 2019 3:50 pm

Adamski wrote:
Fri Nov 01, 2019 9:44 am
Have you thought about moving to another cheaper Canadian city, now you have hit 4% swr and you could buy a cheap home and could up your lifestyle in ER?
I regularly think about this and probably far too deeply, and each time my conclusion is that Toronto is close to the cheapest possible place for me. I'll explain more in my next big journal entry. Featuring more graphs!
Nuuka wrote:
Fri Nov 01, 2019 10:18 am
Would it be possible to study for master’s degree while working part-time?
Absolutely! But going back to school would be the effective start of my retirement for me, and I wouldn't want to ruin it right away with more work. Universities here also pay a stipend which is more than enough to fund all my activities. We don't get cool doctoral swords though.
giskard wrote:
Fri Nov 01, 2019 10:37 am
I have not been working for a month now, the intention was a "mini-retirement" and then getting a job again at some point. I was really worried about how I would handle things, but I have actually been super heads-down working on a business and things are starting to pay off. I never want to go back to doing a 9-5 and I feel more motivated than ever but yeah I was really worried when I was just starting off. Who knows though, in six months things could be different.

I wonder if we should start a master-mind group for ERE people that quiting work but want to stay active on some projects? I mean, that is kind of what these journals are for but maybe something more structured would be useful as well.
Burnout comes fast if you hyperfocus on a project, especially if you're a workaholic. I have a literal and long list of planned projects, but burning out and being unable to enjoy these projects even when it's something I would normally enjoy is what scares me. If the burn-out is at work then I can just move on or blame it on the project being unengaging. When it's my own dream project... who knows?

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Mon Nov 11, 2019 3:17 pm

Wedding Extravagance Levels

We've been to about 9 weddings this year. It's enough over the last few years that we can make a few observations and set up a Wheaton Levels-like system for classifying various wedding types. As with the Wheaton levels, anyone a level above/below you is admirable/gauche, anyone two or more levels in either direction of you is insane.

Tier 0: Not actually married, but referring to each other as husband/wife/spouse.

Essentially Eloping:
Tier 1: Bare minimum, occurring in a place not meant for weddings. Apartment balcony, courthouse hallway. Officiant + 2 witnesses only.
Tier 2: Vegas wedding. Bare minimum of people, but in designated wedding venue.
Tier 3: You invite more people to the ceremony but omit any reception.

Intimate gathering and low-key:
Tier 4: Self-catered/potluck reception in a place available to you at no or minimum cost. Minimalist backyard weddings.
Tier 5: Catered reception in a place available to you at no or minimum cost. Catered backyard weddings, with all the fixings. May also include a bartender.

Getting complicated, but still manageable alone:
Tier 6: Rented venue and catered reception. Few fixings, lacking things like themed accessories, fresh flowers, and cake.
Tier 7: Like tier 6, but more colour/theme coordination. More frills/branding present. (e.g. cake, photographer, flowers, chair covers)
Tier 8: Like tier 7, but including more professional services: MC, DJs, multiple photographers, live band, photo booth, videographers. Intentional, choreographed dance routines. Snacks and bar available between events. 200-300 guests.

Ultra-luxury wedding, definitely involved a wedding planner:
Tier 9: Pageantry, fancy car, grand entrance and exit. Personalized, branded swag/favours (e.g. monogrammed dance floor wrap). Signature cocktails. Occurring in castles, and fairy-tale-level venues (including Disneyland). Live animals released (e.g. butterflies and doves). Basic fireworks. 300+ guests.
Tier 10: Involves a horse, elephant, Rolls Royce or other fancy/impractical transportation. A jousting tournament takes place in your honour. An entire fireworks show with mortars. Everyone is in a tux, women are wearing fascinators or hats.

Weddings for non-mortals...
Tier 11: Literally a Royal wedding. Her Majesty the Queen shows up. It is televised and people sell commemorative plates of the occasion.

Hazel-is-ok
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Re: Basuragomi's journal

Post by Hazel-is-ok » Mon Nov 11, 2019 3:41 pm

Hi,
I'm enjoying your journal.
I love the colour coded graphs. Much better than my recent attempts. What software are you using?

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Tue Nov 12, 2019 11:39 am

Thanks!

I use LibreOffice. You can replicate the graphs in MS Office quite readily. E.g. the black 4% withdrawal dots are actually a separate bar graph overlay filled with a transparent gradient.

I stick all my account balances, transfers, income, expenditures, etc. into a very long table then pull them into the standard reporting sections with the sumifs function and regex (the main advantage LibreOffice has over MS Office). Expense breakdowns are in another table as they are on a different accrual basis, but are also stuck together with regex and the sumifs function.

Hazel-is-ok
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Re: Basuragomi's journal

Post by Hazel-is-ok » Wed Nov 13, 2019 9:23 am

Thanks @basuragomi. I'm feeling inspired to improve my spreadsheet skills :-)

Hristo Botev
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Re: Basuragomi's journal

Post by Hristo Botev » Wed Nov 13, 2019 10:10 am

basuragomi wrote:
Mon Nov 11, 2019 3:17 pm
Wedding Extravagance Levels
Love this! So true.

We are thankfully in a phase of our lives where we aren't regularly attending weddings. All of our friends who are going to get married (and remarried) have already done so, and so apart from the random younger cousin and younger work colleague weddings, we no longer have to plan our annual travel around who is getting married and where. I love a good wedding, but for the most part I can do without the reception. The last "wedding" I went to was really just a reception. There were some vows exchanged at some point during the party, but they were exchanged ironically as the drinks continued to flow and the music continued to play. I don't get it (OK Boomer?).

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Thu Nov 14, 2019 10:38 am

I think the reception is pretty vital. As a social event, weddings should have a serious part and a fun part. Unless you're attempting to wrest dynastic control of your Gallic silver mines away from the other patricii, in which case it's all serious. An all-fun wedding seems to miss the point as well. I guess I don't get it either.
Last edited by basuragomi on Thu Nov 14, 2019 10:46 am, edited 1 time in total.

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Thu Nov 14, 2019 10:46 am

Why Toronto Isn't Really That Expensive

Toronto is the second-most expensive city in Canada by a wide variety of metrics. However, these metrics are meant to be meaningful with respect to the "standard" Canadian lifestyle - a heterosexual couple at the 75th earnings percentile that drive separate cars, own a house for their 1.54 children, and pay someone else to care for them. Once you move away from the requirements for this assumed lifestyle, the metrics change drastically. I'm going to focus on housing and transportation costs in this entry as they are the two greatest expenses these metrics typically focus on.

There is an optimum form of transportation and housing for each living situation. Generally speaking, denser municipalities require less expensive and less powerful transportation. Cost-of-living metrics often assume ownership and use a car, so are inadequate for situations where cars are not useful.

Denser municipalities also tend to have more expensive housing. The type of housing is also critical when considering cost in dense cities, as well as the decision to purchase versus rent a place. For a new-build condo in downtown Toronto, market-rate rent currently covers about 2/3rds of a typical mortgage payment! It doesn't take much effort to figure out what one's optimum form of transportation is for a given form of housing, and vice-versa.

So there is an implicit relationship: When optimized, housing costs are inversely proportional to transportation costs. I can trade cheap housing for expensive transportation and vice-versa.

When I plot this out according to my subjective whims after years of browsing real estate/rental sites, a trend emerges:
Image

The red line represents the lowest-cost city for a given mode of transportation and, conversely, the lowest-cost practicable mode of transportation for a given city. I call this the Efficient Housing Frontier (with apologies to any economists).

Why do people live away from the efficient frontier, e.g. in Richmond Hill (average house price: $940k, buses run once every two hours)? They presumably have goals competing with minimizing costs, or their life situation demands certain accommodations largely unavailable on the efficient frontier. Some people force their way to the efficient frontier anyways by refusing to use more expensive transportation or achieving much lower housing costs via buying 30 years ago or inheriting housing. Either way they pay with time, flexibility or forgoing potential profit from moving to a lower-cost place. Time budgeting is pretty key as well and is something I want to go more into for future entries.

I can use the efficient housing frontier to determine how unoptimal my Toronto housing/transport situation is:
Image
The Optimally Cheap Trade-off Line is the tangent to the efficient frontier that maximizes the area beneath the tangent. The point of tangency indicates that point M (Montreal) would probably be the cheapest place in Canada to live and get around. Any point along the tangent (e.g. X) would be equal with respect to the sum of housing and transportation costs.

So the incremental cost of living in T (Toronto), equals X+the difference in housing costs. It is a significantly smaller difference than otherwise indicated by raw housing rates.

Does it work in practice? Well, I quickly realized that rent for a 1br in practically every walkable/bikeable city centre in Canada is over $1,000/month. This suggests that there is more granularity to the frontier, but indicates that walkability has a very real cost, even in places that overall have low walkability. I will not save very much money by moving to Montreal, maybe $300/month in housing. Moving to a rural area and buying a house would save probably around $800/month in housing, but using a car is at least $600/month of additional costs.

So Toronto is expensive if you insist on having a car or buying a house. Being flexible saves a lot of money and helps me with other goals. Moving elsewhere would save me some more money, but the opportunities Toronto provides is more than enough to keep myself and millions of others here.

But obviously people live and get around for much less. I must be missing something - maybe a car doesn't really depreciate that much, or maybe rural life requires much less driving than I thought? This is something I consider fairly frequently. Or maybe I am correct and house prices in Canada are just mind-numbingly insane.

I have ideas about how to reduce my housing costs in a way that will help me meet my other goals. I will be examining my largest costs and ideas to reduce them in the next few entries.

Adamski
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Re: Basuragomi's journal

Post by Adamski » Fri Nov 15, 2019 8:53 am

@Basuragomi - net graphs and write up. The net worth looks good.

This is something I've found when started serious saving is that you get a linear progression of net worth, and that (quite likely) continue.

jacob
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Re: Basuragomi's journal

Post by jacob » Fri Nov 15, 2019 9:06 am

Cool analysis!

7Wannabe5
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Re: Basuragomi's journal

Post by 7Wannabe5 » Fri Nov 15, 2019 3:44 pm

I would be interested to know what rough dollar amounts you would assign to your wedding extravagance levels. My DD28 was recently married and I think the event ended up sort of off your charts due to the high level of talented social and creative capital that was summoned up towards the occasion. For instance, instead of buying fresh flowers, she made beautiful highly unique bouquets and tablescapes using origami, and one of her uncles brought the D.J. equipment, and one of her friends did the photography, and I baked a hundred cheesecake squares, etc. etc. etc.

Your analysis of transportation and housing is very cool. I wish I had seen it when I was struggling to figure out similar solution with third complication of "amiability of housemate(s)" in the mix. Upside of throwing down the money for a wedding leading to happy marriage would be reducing this 3 body problem to a more graph-friendly 2 body problem.

JL13
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Re: Basuragomi's journal

Post by JL13 » Sat Nov 16, 2019 8:30 am

basuragomi wrote:
Thu Nov 14, 2019 10:46 am
but using a car is at least $600/month of additional costs...

...I must be missing something - maybe a car doesn't really depreciate that much, or maybe rural life requires much less driving than I thought?
[Note: numbers below are in USD and US miles]

I've always used $500 - $600 per month as a rule of thumb - for the average person I think it's a solid number. The costs can come down if you're lucky, knowledgable, and use the car less, but not by that much. For example, if you use a car infrequently, you can buy an older car (i.e. consume less car) because you don't need it to be 100% reliable. If it's in the shop for a week your quality of life isn't really impacted. However if you live in a rural area you're likely more dependent on the car to get around, so you probably need a newer more reliable one which would mean more depreciation.

Even if you drive a car less, the fixed costs are still there. A good rule of thumb is about half the depreciation is due to mileage and half to age. So if a typical car depreciates 20% per year, and you put very few miles on it, it will still depreciate 10% per year. And most repairs and maintenance items are not mileage related. They're more related to the passing of time (even a sitting car will be deteriorating), stop and go driving (hard on engine, brakes etc), and heat cycling (warming up a cold engine is where the majority of wear happens, and the high heat/low heat cycling causes rubber and plastic parts to crack). So if you own a car and put very few miles on it, insurance, registration, repairs, and maintenance, and half of the depreciation costs are still there. You only save gasoline and about half the depreciation.

With my last car, I probably broke the record on depreciation (someone with an air cooled Porsche or Toyota Supra probably beat me, but no one expects their car to appreciate). I bought a somewhat rare 7-year old Japanese sports car for $2,000 below blue book and sold it 7 years later for $2,000 above blue book. Drove it 100 miles per week on average. It depreciated 8% per year during that time period. I also am mechanically inclined so most of the repairs and maintenance were done in my driveway and the parts I almost always got at a big discount.

So, without including any cost of my labor, and taking into account the incredibly low depreciation, I think my total cost of ownership(including insurance, registration, gas) was about $350 per month. I wouldn't expect to recreate that either. Factoring in inflation since then, and converting to CAD, I think you'd be nuts to budget less than $500cad.

This is all assuming you’re a standard car consumer. I’m sure there are people on the message board here who have come up with more creative solutions, but for this analysis I think your car expense number is spot on.

basuragomi
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Re: Basuragomi's journal

Post by basuragomi » Fri Nov 22, 2019 3:55 pm

@7W5: Congratulations to your daughter! It varies tremendously based on your location, number of people and your labour-time tradeoffs. E.g. the origami flowers - I've seen people do that and it's 2+ weeks of folding to get everything done! The fad of colour themes is so popular that it can be hard to sell things afterwards as well.

I'd say roughly:
Tier 0: $0
Tiers 1-3: $200-$500
Tiers 4-5: $500-$5,000
Tiers 6-8: $5,000-$100,000 (the average Canadian wedding is apparently about $35k)
Tiers 9-10: $100,000-$1,000,000
Tier 11: $25,000,000+

@JL13: Thank you for the reality check. I've concluded that most people simply ignore asset depreciation or opportunity cost of equity in their cost of living (but still include the equity in their net worth). As a renter or borrower it's harder to hide costs from the metaphorical books in that way.

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