ERE Year 2 - Choose Your Own Adventure - Homeless and Confused Edition

Where are you and where are you going?
2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

@bigato, moving forward that is certainly how I will approach these things, and have for every single other "large" purchase I've made since tracking began in Dec of 2014. I guess I should have been a bit clearer in my car sale post, while the depreciation was $2k more than I had pegged the value in my spreadsheets, it was more of an optimistic accounting causing the $2k variation than the need/desire to sell the car quickly. I probably could have gotten another $500-1000 if I found the right buyer, but I also could have ended up getting less + the stress of having it on my mind all this time between now and when it sold. The car value I tracked was in "good" condition, and while my car met most of the criteria, it did have some issues and deferred maintenance, bringing it's true value below what I had it pegged at, those things happened over a long time, so I went back and used c_L's method to smooth the cost out. It actually ended up being pretty close to using lump sum in terms of total spending for 2019 vs. the amortized method.

@c_L, trust me, I will never splurge like that again. The car was a very good lesson on hedonistic adaption. I did enjoy it a LOT, but dealt with all of those emotions and stress you describe. I drove beaters since I was 16 years old, and at 28 years old, in my second year of earning $100k+ I thought it was a good idea. The car cost ~10% of my gross income for that year, and while it was a nicer more expensive car, it was still a LOT cheaper to own and maintain than the new $40-75k cars my peers were driving/leasing/buying. It's funny, I was just in the gym yesterday and an Audi commercial was on the TV about leases on the new Q7, $549/month is $5,399 due at signing! You are out $19k after 24 months and have nothing at the end.

The next vehicle will likely be a cheap minivan or conversion van in the <$5k range. Won't be needing one for at least the next 18 months. We also decided that from now on, we are totally fine being a 1 vehicle household. So that cost will be split between two people. Needless to say, transportation costs should work out to much less in the future vs the past.

Aside from $164/month in depreciation, until earlier this year my insurance was $112/month, gas ~$100/month, and ~$50/month in maintenance (oil changes, tires, registration fee's) for a total of ~$425/month! Not a big deal when I was grossing ~$11,500/month over that period, but a shit ton of money to someone trying to live on a 3% WR @ $1380/month.

@7Wannabe5, I'm not sure I understand your point/advice.....
Last edited by 2Birds1Stone on Sun Nov 17, 2019 5:05 am, edited 1 time in total.

Seppia
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by Seppia »

You guys/gals are all way too accurate for me :)
The way I account for purchases is always cash based, as I find it too complex otherwise.
So if I buy a scooter, I book it as an expense. When I sell it, I book the proceeds as "income".
I know it's not the "correct" way to do it, but it's very conservative.
Only exception being the apartment, which I consider as an "asset" worth half the price I paid for (for safety reasons)

I'm curious if you already have a detailed plan for your trip, care to share it? (maybe you already did and I just missed it like an asshole)

slowtraveler
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by slowtraveler »

We all learn. No need to stress the purchase. You're already in a good place.

Like Seppia, I count the expense as a whole at time of purchase. I count selling it as income offsetting previous expenses.

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

No offense to anyone doing that, but it's wrong.

Let's use the example (using very simple #'s), of someone who earns $1,000/month and spends $500/month, over a 10 month period. They have a 50% savings rate.

They buy a $1,000 car on month 2, in addition to their normal spending. They have a negative savings rate that month. They then sell the car for the same price they purchased it ($1,000) on month 9, and count the $1,000 as additional income. Their savings rate would work out to 45.45% over the 10 month period, when it should really be 50%, since the car didn't actually cost anything to own (ignoring obvious costs outside of the purchase/sale price).

If we do the same math with a $10,000 car, their savings rate would calculate to 25% over the same 10 month period. The purchase price on one side of the equation (expenses) does not translate to the same thing on the other side (income) when calculating savings rate, and I believe it is a poor way of accounting for the cost of things.

Edited to add - the amortization method c_L suggested, of subtracting sale price from purchase price and spreading it over the period of ownership would be the most accurate. I guess you could also subtract the sale price from expenses in the month you sell an item, that could paint a rosier picture of your finances if you happen to unload a ton of stuff at once. Or go back and subtract it from the purchase price of when the expense occurred.

Seppia
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by Seppia »

Oh no offense taken at all - I know it’s wrong.
My goal when keeping track is not GAAP, but being as safe as possible.
Ultimately, I also do not care what my savings rate is, as it’s not what I base my calculations on (estimated expenses and conservative income from assets is what I use).

This system also creates a psychological incentive to keep purchases low, which is a good side benefit.

7Wannabe5
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 7Wannabe5 »

, I'm not sure I understand your point/advice.....
The IRS allows for Actual Expenses Vehicle Use (inclusive of depreciation) OR Standard Mileage calculation.
https://turbotax.intuit.com/tax-tips/se ... /L0wIEUYhh

These two options can be relevant even for non-deductible calculations, because it is possible to experience a steep depreciation with low mileage or vice-versa. IOW, the utility you received from the vehicle between purchase date and sale date is also relevant.

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

@Seppia, gotcha! That makes sense then. I do care about savings rate as a metric, or at least did during accumulation =)

@7Wb5, ah yes.....I do think about this at a higher level. If you own a car that costs half that, but use it 1-2 times per month it's "per use" cost is very high. I loved this principle from the ERE book. It's also where the amortization of assets purchased and sold is from.

@bigato, this is simply to determine a more accurate savings rate as well as to attempt to understand average costs over a period of time. I'm not going to nit pick opportunity cost of money for each purchase vs. having it invested. If I were to do that, I would only use a guaranteed return rate at any given time, which right now is 1.6% in the USA. This isn't about splitting hairs, it's about being consistent and accurate over the long haul. I understand the point you're making, but the method you posted on 11/13 is neither accurate not consistent.

Playing devils advocate, you find a great deal on a vehicle (below market value) and instead of selling at a loss, you actually turn a profit. Your accounting method dings the savings rate calculation, while in reality it should at worse no impact it (or possibly improve it if the profit were large enough). I think we can lay this one to rest, everyone will track things differently, it's most important to be consistent (regardless how conservative you want to be).

classical_Liberal
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by classical_Liberal »

@2B1S
Now that you want to put it to rest, I'd like to make another point. :lol: sorry.

I find it very interesting how the conversation evolved. You, me, @bigato looked at the whole question as, how much is this car costing me in totality? We want to measure how car ownership impacts our net worth and maybe cashflow. We are operating from the assumption "car expenses bad", so we look at how to minimize them or optimize them. Whereas @7WB5 instantly jumped to a method that measures, how much is this costing me per mile driven? and what am I getting for those miles? I just find it interesting, because maybe we are coming from different quadrants (ie Salary Man vs Business Man). Perhaps even different Wheaton Levels, 4-5 vs 6-7.

I think it's important to point out these nuances when there occur on this forum, because it's more than just accounting that's at work in these thought processes.

anesde
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by anesde »

I’m with Seppia - cash accounting which has the added benefit of making me spend less. I don’t even register a sale as income, but then again I only track expenses.

I always found depreciation for personal expenses a bit strange. 2B1S - you say you don’t want to nitpick every expense vs opportunity cost but you are nitpicking which items you depreciate and which you don’t. I don’t think you depreciated your e-skateboard?

It just gets messy for me. It is a type of product (i.e car but not electronics?) A total amount thing? (i.e >$1000?) if you’re depreciating then by definition you’re also including it in your net worth (albeit on a depreciated basis). Just seems like more work for not much benefit, but I suppose it depends on what and how much you buy.

I consider physical purchases either assets (property) or liabilities/expenses (pretty much everything else). Definitely not GAAP!

EDIT: Sorry, didn’t see “this is now closed” :lol:
Feel free to ignore :D

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

Posting from my phone, so brief.

But @anesde, I sure did. I counted the $29 of difference between purchase and sale price. Event though I initially counted the whole $679 purchase price as an expense, then when selling for $650 reduced expense by this amount.

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

Alrighty, now that I have fresh coffee and my laptop, wanted to expand on my response from last night.

@anesde, I typically determine at time of purchase whether something is durable and will be resold, or if it's something I plan to own till it wears out and/or value diminishes to practically worthless on the secondary market. Taking a page out of the ERE book, specifically the section on the "true cost of things" Jacob's emphasis is two fold. Everything he owns is for sale, thus it encourages him to find durable items at a good deal, thus owning things for as close to free as possible, and the second is also considering their "per use" cost (which is partially what c_L and 7WB5 pointed out, her taking it further an delineating between personal/pleasure use and using it derive other value from).

I don't make these capital expenditures often, and I've averaged 6+ years out of computers, 4+ years from my mobile phones, wear my clothing till it wears out, etc. Off the top of my head, besides the car and eSkate, the only large capital expenditures I've made for "things" have been my last two bicycles, which definitely have a resale value. I counter their purchase price as a line item in my spending, and if I were to sell them, I would then deduct the sale price from my expenses in the future. Their value is small enough relative to the overall spending that it may not be worth amortizing the purchase/sale over such a long period of ownership.

@c_L, interesting observation for sure! My SO and I realized that once I was no longer working FT in an office, almost two years ago, that we could probably get away with dropping down to one vehicle. My car was definitely a "luxury" and mostly used for convenience. This was a conscious choice when I determined the cost vs. my income at the time. As soon as that income dropped to nearly nothing, I was very quick motivate a sale. Re: Wheaton levels, it's something I'm working on.....always thinking about how many different uses something may serve, and ultimately what type of value I am getting beyond what appears on the surface.

One nuance I wanted to add. My accounting method has very little to do with my spending. Since I don't budget, but rather track historical expenditures, for education purposes. I don't think changing how I record a purchase/sale of an item would influence my decision to purchase that item. Having run the analysis post ownership, definitely impacts how I will go about acquiring our next vehicle. And we do plan on staying as a one vehicle household when that time comes!

Edited to add - since I was fucking around with savings rate, and this month marks exactly 5 years of tracking detailed income/spending data....net savings rate over the past 60 months = exactly 80.0%, YTD for 2019 sitting at 82%.

7Wannabe5
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 7Wannabe5 »

My perspective is that an automobile is a tool and a share of an index fund is a collection of very small portions of very many collections of tools. If you completely inhabit the perspective that your life should be managed like a business, then everything from a high end blender to a LBD might also be considered a tool AKA more or less productive asset. It really depends on what stocks or flows you are optimizing and the boundaries of your system. For instance, maximizing stock of money towards "freedom" is different than maximizing stock of money.

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

A lot going on (that seems to be the theme lately!), over the past week.

1) We went down to town hall last week and paid for our marriage license, visited two different town courts to pick one for the ceremony ($100), settled on a date (Dec 6th!), and let our parents and siblings know. On Thursday we also signed and notarized a pre-marital agreement. The notary public who we worked with (at our library for $1 fee!) told us that she eloped as well, and has been married 50 years with 9 grand-kids. We also ordered my wedding band ($10 silicone variety). All set.

2) Last Sunday my soon to be wife got injured at work. Pulled/tore something in her right shoulder. After numerous Dr visits throughout the week, she was prescribed 6 weeks of PT and told she can't work for that time. Workers comp is paying for the medical stuff, but if she gets some kind of compensation in lieu of wages it will be a reduced amount. A bit stressful since I just quit my job......but that's what FU$ is for. I just hope she's back to 100% health before our trip.

3) We're adjusting to being a one car household really well! Should have done this a long time ago.

4) I crushed my goal at the race yesterday! I was hoping for 5 laps (51 miles) of the course in 6 hours, and managed to finish in under 5:30! It was a very difficult experience, but I loved every minute. On the 4th lap both of my quads cramped up, and then on the 5th I hit my stride and had some friendly female relay racer I paced for a strong finish. I'm REALLY going to miss MTB when we travel.

5) Have a 10 mile foot race I'm signed up for on January 18th, so will be transitioning to a bit more running over the coming weeks. Weight has creep'd up to the 204-205 range again, and I really need to not get fat this winter. Last year I was 212-214 by new years. Goal is to stay <205 throughout the holidays, and get back as close as possible to 200 before traveling. Will feel better and put less stress on my body with all of the walking we will be doing on our travels.

2Birds1Stone
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Re: Semi-ERE Experiment - Month 6 - Downsizing From 400 sqft to 50L Backpack

Post by 2Birds1Stone »

November Financial Update

Combined Assets
$695,600 (+$20,600)

Combined Spending
October - $2,430
Trailing Twelve Months - $33,820

Combined Income
$3,000 Net

Savings Rate
19%

Current Withdrawal Rate
4.9% (Portfolio = 20.5X annual expenses)

Activity
10.2 Miles Ran (34 miles last month)
213 miles biked - MTB (250 last month, mixed road/MTB)
91 miles walked (76 miles last month)
12 weigh-lifting sessions (11 last month)
1 lb gained (205.6 on 7 day average)

Musings

Individually @ $18,646 - TTM Spending, 30.2X annual expenses, and a 3.3% WR

A lot of BIG changes in November re: finances. It's my first month in 19 years without a steady paycheck. As such, our savings rate has plummeted from 70-80% down to a combined 19%. Small part of this was SO getting paid for a partial pay period till her workers comp stuff gets sorted out. My individual TTM spending flew up due to the car sale and realized depreciation of the vehicle. Luckily markets had a good month, which alleviated the mental aspects of no/lower income.

Individually, my spending was the lowest month since January, coming in at $1,233. Individual income was $1,500 broken down as such;

$600 SoFi Money referral bonuses
$300 Chase Checking bonus
$600 Interest/Dividends

Since only $900 was "earned" income, my savings rate was negative =D

With our combined finances, spending was pretty low for this month, but next month will be higher with elopement costs. TTM <$34k is pretty kick ass, and will likely drift up significantly with our upcoming travels.

Outside of financials it was a mixed bag.

Activity level stayed fairly flat overall, with MTB taking a priority over running, which showed in the mileage. Second month in a row with weight creeping up. Looking back at my spreadsheet, looks like I'm still 5.7 lbs lighter than I was this exact time last year. I'm planning on picking up the running and weight training in December.

Elopement stuff is all set for this Friday. Largest cost will be a dinner for ~10 people at a nice restaurant, which between food and booze we expect to spend ~$75 PP. Should still get everything in for under $1,000 for the big day! I'll do a cost breakdown after it's all said and done.

classical_Liberal
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by classical_Liberal »

Congrats!

Jin+Guice
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by Jin+Guice »

How'd that first week without a paycheck feel? Have you had to draw down any accounts yet?

2Birds1Stone
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by 2Birds1Stone »

Thanks, c_L!

@J+G, it felt like freedom! Technically yes. My "spending" for November was $1,233, but $164 of that was the last month of car depreciation I had amortized, so actual cash outlay was $1,069. "Income" from SoFi referrals and Chase checking signup bonus was $900, which means that $269 was what I had to draw from the portfolio in the first month of true jobless ERE.

I have $0 in "side hustle" income coming in December, so this will be a truer test of how it feels to spend down assets, everything I spend this month is coming out of savings/investments.

Jin+Guice
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by Jin+Guice »

I'm very interested to know how this feels. I'm also interested to know if your expenses fall/ rise or stay the same post-retirement. IIRC you assumed they would stay the same.

ajcoleman22
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by ajcoleman22 »

Congratulations!

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Stahlmann
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Re: ERE Experiment - Vagabonding On A Shoestring Budget

Post by Stahlmann »

so why u was fat guy in high school?
what would be top5 (subjective) things why ur "transformation" (in terms) of personality is/was longterm?

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