Renewed motivation to push for financial independence

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JenAR
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Joined: Fri Jul 10, 2020 9:46 am

Renewed motivation to push for financial independence

Post by JenAR »

I am 32 and have been living a semi-retired lifestyle for years now, either doing some variation of homesteading or living in my truck to minimize expenses. I have had to work very little to maintain myself without touching my capital, and my savings are enough to live on for 5 years at a minimum, even at the more extravagant end of my spending range (~$500/month). At the lowest end of my spending range (~$150/month), my timeline is closer to 17 years before needing to work, although I find it psychologically fatiguing to maintain such low expenses indefinitely. My current expenses are actually even lower (~$50/month), as I have been living in an intentional community where my food and housing are free for the past year; however, I must work full-time on permaculture projects in order to maintain this situation, and while I am enjoying the work and find it inherently valuable in multiple ways, I do not wish to be obligated to devote that much of my time to the project indefinitely.

I still lack two things to reach genuine financial independence:

Sufficient capital to generate income in excess of my expenses if I were to leave my current living situation
Investment skill (said capital is currently sitting in a savings account, and thus doesn't generate much income)

This is somewhat challenging in that I don't currently have a job nor the time to maintain one without giving up my current living situation, which I am unwilling to do; this seems to leave me with the options of on-site odd jobs or remote work, unless I think of something else. I am also interested in developing residual income streams as a partial replacement for or supplement to any investment income.

I intend to keep a record here in order to motivate myself and to circumvent any tendency to fool myself with regard to my progress.

I used to lurk on Jacob's blog years ago, but was never involved with the forum, so I look forward to finally participating!

jacob
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Re: Renewed motivation to push for financial independence

Post by jacob »

JenAR wrote:
Thu Jul 16, 2020 11:07 am
Investment skill (said capital is currently sitting in a savings account, and thus doesn't generate much income)
This is very much the situation I found myself in during my early years:

I had all my money sitting in a savings account for years because a) I was saving for a house rather than a FI cashflow; b) I was constantly moving between countries---dealing with offshore investment accounts is PITA; c) As a haughty science type, I couldn't be bothered to learn anything about finance.

Side income was also challenging, because I spent the first three years in the US on a visa which disallowed any kind of earned income beyond the specific position the visa chained me to.

The solution was of course to realize how useful it would be to learn how to let my money work for me. Capital income was okay (wrt the visa) and I already had money saved, so it was mainly a question of learning how to put it to work. So I spent my evenings reading a lot of finance and investing books. This is only something one needs to do once, but I think everybody needs to do it, because viewtopic.php?p=221617#p221617

There are of course easier ways, but to me, that's like trying to become a gardener by using all one's savings buying seeds and fertilizer, throwing it on the ground in the pattern as prescribed in a book or as stipulated during a one hour consultation with a professional, then coming back 6 months later and hoping that whatever comes out of the ground is worth more than what was tossed in. It is the normal way of "investing" but I think it's insane.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@jacob

I plan to start working my way through the investment curriculum you've recommended, although I am struggling with having hit a point where dedicating time/energy to additional pursuits means that something else which I am attempting to pursue falls off my plate, or I simply cannot bring enough concentration to bear to parse additional complex information. Ugh.

It may be a couple of months before my personal metrics "authorize" a book purchase (I only allow myself to buy a new [used] book when I have finished the one I'm reading, and when my Amazon points accumulate sufficiently to cover the total cost of the book), but when they do, McConnell's Economics will be at the top of my list.

classical_Liberal
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Re: Renewed motivation to push for financial independence

Post by classical_Liberal »

Glad you decided to start a journal!

Maybe look at investing from a business persons perspective. Something you can add a bit of "sweat equity" to juice up returns and that matches up with what you're trying to accomplish with the rest of your web. Edit: you're very good at doing this to reduce expenses, so why not flip it on it's head?

Don't ask me for specific ideas, I'm trying to figure out this exact problem in my situation. :D My only suggestion is to look for something that's scarce and think about if a small part of your capital can be used to generate more of it.

Seppia
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Re: Renewed motivation to push for financial independence

Post by Seppia »

With your expenses being so low, you seem to have mastered the frugality skills (level: insane).

To achieve FI, an alternative to becoming an above average investor (level: very hard) could be to leverage your skills and quickly accumulate a mid size capital (level: easy) and then just become an average investor (level: easy).

I’m saying this because I’ve noticed I can put maximum effort in any aspect of my life (and by consequente achieve above average results in that particular field), but not in all of them.
Similar to the “you can afford anything, but not everything”.

That would require leaving your current situation, but based on the very limited info and reading I’ve done in the last few days I don’t think it would necessarily be a bad thing (euphemism).

jacob
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Re: Renewed motivation to push for financial independence

Post by jacob »

In that case, I think starting with Bodie is better. You can get an old one for $10 used.

The point of doing this "1000 hour"-exercise is not to become a competent analyst---few find investing interesting enough to spend more time on it, though I did---but to be able to make an informed choice/evaluation of the various strategies that gurus and experts offer instead of relying on how popular they currently are.

sky
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Re: Renewed motivation to push for financial independence

Post by sky »

Step 1: get a Charles Schwab account with checking and debit card.
Step 2: transfer some money there, if the transfer works, transfer more.
Step 3: Research investing strategies. There are many. If you don't want to become a financial expert, choose a fund or two. Perhaps look into a target retirement fund dated about 10 years into the future.
Step 4: Look at this SPX 1 Year Simple Moving Average chart: https://www.marketwatch.com/investing/index/spx/charts
Step 5: When the daily price is well below the simple moving average, it is a good day to buy.

This is oversimplified, but it would be a far better strategy than keeping money in a savings account.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@c_L
I currently have a couple of "cash crop" contenders going on my plot (my plot being an acre of community land to which I am given access as part of living in this community, and on which I will have lifetime rent at the end of two years), namely hazelnuts (hazelnut butter being a value-added product) and saffron crocuses. We will see if that particular investment pays off in the next growing season or two; at the very least, it will help to eliminate my food expenses once I am able to transition to living full-time on my plot rather than working full-time on community projects. When I was raising cattle, that was quite profitable, but the land and infrastructure here have a long way to go before that becomes an option. I also used to run a tutoring and essay-editing business, which I did well at but quickly got sick of. One idea that I've been tossing around is building a natural home and decking it out with attractive gardens and water features, and then renting it out periodically while camping elsewhere. There seems to be an increasing niche market for people with chemical sensitivities, allergies, and even cancer and autoimmune diseases who wish to rent natural structures and eat a nutrient-dense organic+ diet. These would be structures I want to build anyway, so no real downside. Of course, that'll take a couple of years to ramp up. I'm spending a couple of hours each week in a FreeCAD study group with others here, with the idea of being able to draw up plans of some of the structures I'm building (sauna, house, etc). Such plans would be of value to me in the building process, but might also provide a trickle of residual income if I were able to sell them; not sure anyone would ever buy them, though. There's also the possibility of running events/workshops/courses on homesteading and permaculture topics, or having a YouTube channel focusing on the more aesthetic & interesting aspects of homesteading and permaculture, which my life is pretty good fodder for.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@Seppia

I am considering your idea that my time might be better spent increasing my capital than increasing my investment skill past a certain point. I do not find it nearly as easy to motivate myself to make money as to reduce expenses or to learn things, but if I find investing painful and boring after delving into it more, that seems like a viable path. I certainly agree that it's wise to consider which skills one wishes to maximize rather than trying to maximize them all, which is a recipe for failure. That's something I struggle with--keeping my interests limited enough to become really skilled and varied enough not to be bored/frustrated.

I'm not sure that making significant money would necessarily require leaving my current situation--there are opportunities to make decent money here, perhaps even six figures for someone with the chops--but I am so much less interested in those positions than in what I'm doing that I haven't seriously considered them.

I really do like it here and will almost certainly not leave for the next eleven months (after which I will have lifetime rent), but after that, I will likely only be here for part of the year, and have never intended to make this community my only option (among other things, I have family land back home in Texas, a vacation property I will likely inherit there as well, my truck that I have lived in previously and in which I can drive away anytime, and a network of friends and relatives with whom I could live indefinitely and whom would enjoy having me visit and help them out . . . plus a semi-plan to purchase a bluewater sailboat and fix it up for a tropical circumnavigation at some point). So if in eleven months I haven't made significant progress toward my goal of FI, I will certainly consider taking on work elsewhere to quickly accumulate some capital. That's what some of the guys here do seasonally (one of whom has been living here for going on five years now).

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@jacob

Thanks! I'll prioritize the Bodie book, then.

@sky

I have done mutual fund investing through a broker when I was young (junior high/high school), and then index funds online (university), and then individual stocks and REITs online (later twenties). I sold high(ish) and got out because I felt that I knew just enough to be dangerous (like, I know what a P/E ratio is), but not enough to feel confident that I could avoid losing. I haven't done anything to change my knowledge & skill levels, so I still feel that way, and it doesn't bother me much to keep my money liquid until I feel confident enough to invest it (and to decide if the stock market is what I'll be investing it in). You might be quite right that your approach is a much better strategy, but right now, for me it would be a procedure and not a strategy, so I think I'll wait and eat the opportunity cost.

sky
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Re: Renewed motivation to push for financial independence

Post by sky »

With 30k in a decent fund, you could withdraw about $100 a month forever.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@sky

That does sound tempting. However, my experience with funds has been that I do not withdraw $100/month. My experience has been that I buy and hold for 15 years before finally breaking even (ouch), that I dollar cost average for years while my average ROR hovers somewhere a couple points below the fund's expense ratio + inflation, or that I clumsily/prematurely attempt to apply various investment strategies (value investing was the last) with mixed to poor results. "Everyone" tells me that a steady 4% ROR is easy to achieve with minimal effort, and yet it has eluded me. So I conclude that I am currently too ignorant to invest successfully in the stock market. I ought to be able to fix that with a few months of dedicated effort, if I can just bring myself to apply myself to it. And I can't help but suspect that if I were to invest my money procedurally in the meantime, I would end up eleven months from now with my capital tied up in investments I don't want, waiting indefinitely for them to perform well enough to justify selling them. I wouldn't be against trying your procedure with a few hundred bucks to test it out, however.

MidwestCoder
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Re: Renewed motivation to push for financial independence

Post by MidwestCoder »

You are obviously a very smart person. I agree with those that think the most impact you can make on your current finances is to ramp up your income. Investment skill is just not that important when you have small amounts of capital. When you have large amounts, investment skill is really important, eventually eclipsing earnings power. I think Jacob talked about this in his book, but is something I have known for some time and believe it to be true.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

Note to self/to whom it may concern:

The $30,000 I have now, if invested, should more than cover my current expenses of $50/month even if I can only manage a 2% ROR. So long as I am in this living in this community, I should be golden, so long as I can get decent enough at investing to not lose my money.

$60,000 at a 3% ROR should cover my minimum expenses of $150 when not living here. So I theoretically only need to make $30,000 to reach FI. That should be doable even for me. I just have to actually try.

$200,000 at a 3% ROR or $150,000 at a 4% ROR should cover my dream ERE budget of $500/month, with which I can go out to eat occasionally, buy books and fancy cheese, and travel. I will probably never work enough to accumulate this much money. But I might make up the difference with residual income streams or eventual inheritance. I probably don't need to worry much about reaching this level, although slowly increasing my capital would be nice.

Seppia
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Re: Renewed motivation to push for financial independence

Post by Seppia »

I would argue that while spending $100 per month, saving $200k is relatively easy.
What’s an average salary in the USA? I recall around $40k?

jacob
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Re: Renewed motivation to push for financial independence

Post by jacob »

Hmmm... I think this illustrates why a solid framework for understanding how different situations require different investment strategies is important. Doing otherwise risks jumping into the wrong pool with both feet and no life preserver.

To wit, the majority of people in the FIRE community have above average (and far above median) incomes; their NW/income is quite low (<5); and their spending is high enough to make cuts. Therefore target date/index funds, which require a minimal understanding of investing, are rational because losses are primarily compensated for by their fire hose income contributions which easily dominate any volatility. You can recognize this type when their net worth plots over time pretty much look like a straight line up with market action being barely visible.

This is very different if earned income is low (the median income from a side-business that gets an hour per day is maybe a few k per year); NW/income is quite high (>20); and spending can not be reduced further. In this case protection of principal and protection of income become much more important because losses aren't patched up with a few extra months of job income.

The latter group aren't well served by the advice to the former group and vice versa. Basically, the first group is "rich" whereas the latter is "wealthy". Alternatively, the first group are "salarymen" and the second group are "investors". The former thinks in terms of flow. The latter thinks in terms of stock. These are completely different. It's not entirely surprising that the strategies that become popular with salarymen achieve their popularity during bull markets.

Anyhoo, rule of thumb ...

If 6% of your NW is a material (high) number relative to either your (potential) income or your spending, then it makes sense to pay close attention to how it's invested, because the investment income-stream is comparable to other streams.

If it's less, then it makes more sense to pay attention to increasing the income or reducing the spending side of things. Noting that this is not always possible for everybody.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@Seppia

It would probably be relatively easy if I had a job/career or wanted one, or enjoyed running a business, or was willing to give up the projects I am pursuing and go elsewhere to do something I am far less interested in, and if my weird and spotty work history didn't make it awkward to find other-than-entry-level work at this point . . . in other words, if I had an entirely different personality and life history. But it certainly isn't easy for me either logistically or psychologically/emotionally, and would make me totally miserable for years, so in conclusion . . . nope. I would much rather live on far less money per month than waste years of my life and suffer the pain of doing what's necessary to save that much money when it's not necessary. But that's totally due to my own idiosyncrasies. For plenty of other people I would imagine it would be fairly easy.

@jacob

That's a very useful framework, and helps to clarify some of my thoughts/experiences. Thank you.

classical_Liberal
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Re: Renewed motivation to push for financial independence

Post by classical_Liberal »

@JenAR
Reading your responses makes me thing that dividend growth investing may be more to your liking. This way you focus on the cash flow and it's sustainability (in the form of payout ratios, ect), instead of the market value at any given time after purchase. Maybe look into that strategy after doing your initial research, if you haven't before.

Although, with all your mini business ideas, I would venture to guess enough will succeed to cover $500/mo as well. I guess it's just a matter of whether you get bored of them once they're up and running. Which is a barrier I totally grok.

@jacob
I like the 6% framework. 15-20X is really when market fluctuations begin to impact Net Worth. That seems to matter a whole heck of alot more without the cashflow. I think most people intuitively realize this, hence all the yarns around here of people who hate their jobs, yet won't give up the income (me included).

guitarplayer
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Re: Renewed motivation to push for financial independence

Post by guitarplayer »

Welcome JenAR! Thanks for sharing, I am going to follow your journal.

I am in a similar situation, same age and also living in a community, plus lacking the same two things to reach genuine financial independence.

I know you have mentioned that you will stay in your community for some months, but I wonder if you could possibly find a community that would pay you a wage for your work? This is my situation, and although the work per se is not permaculture but care, there is a biodynamic farm here and a huge garden with just one gardener who is very welcoming to enthusiasts keen to learn. And the perk is that I am left with over £1200 each month, with the hope of acquiring a bunch of skills + principal for FI.

JenAR
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Re: Renewed motivation to push for financial independence

Post by JenAR »

@c_L

Thanks! I am cursorily familiar with dividend growth investing, but would like to look into it more thoroughly.

And yeah, getting bored with things once they're up and running is a persistent pattern for me. I really love the planning stages and figuring out how to make things work, but then I get restless and soon enough I'm on to the next thing. It kind of bothers me sometimes.

@guitarplayer

I imagine I could pretty easily find a community that would pay me, but there's something of a confluence of circumstances that drew me to this particular place, rather than wanting to live in community in general, so I'll probably remain here at least until I'm vested in the project. After that, who knows? That sounds like a pretty sweet situation you're in, though! I look forward to reading about your progress.

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