akratic's ERE journal

Where are you and where are you going?
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akratic
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Post by akratic » Tue Jul 27, 2010 9:26 pm

Hi! I discovered ERE in December 2009 and started aggressively pursuing financial independence in February 2010. This journal will document my journey to freedom.
I'm going to start with a few long posts about my inspiration, goals, and situation. After that I will update the journal at least once a month with new information on my recent spending and what I'm currently working on. I welcome your suggestions, criticisms, and comments.
Random Facts:

- Age: mid-to-late 20s

- FI strengths: high income; low needs; and I enjoy extremes

- FI weaknesses: itchy feet; eventually want children

- ERE posts read: 100%

- Definition of 'akratic', which is a word from Ancient Greek: lacking command over oneself; knowing what you do is morally wrong, but doing it anyway

- Income streams: three (one passive, one 9-5, and one 5 hour a week business)

- Job Title: Software Engineer

- MBTI: INTj


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akratic
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Post by akratic » Tue Jul 27, 2010 9:26 pm

Primary Goal:

Financial Independence. More specifically: financial independence for myself for the rest of my life. More specifically: accumulating enough assets and having low enough expenses that withdrawing 4% per year will more than cover my expenses.
Future goals will probably include 3.65% FI, 3% FI, 2% FI, and FI for more than just myself (wife/kids?). But for now I'm shooting for 4% FI.
Secondary Goals:

1) Learn enough about investing to move my non-IRA money out of my savings account

2) Learn enough about investing to make 4% + inflation on my assets with high probability

3) Find somewhere cheaper to live that also introduces me to interesting people

4) Cook every meal

5) Find the optimal bicycle


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akratic
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Post by akratic » Tue Jul 27, 2010 9:27 pm

Primary Inspirations:

- Your Money or Your Life - Started the internal revolution. Introduction to the possibility of early retirement. The crossover point. Life energy.

- ERE - Made what was presented by YMOYL seem real and attainable. S-curves. The Warrior Diet. Bicycle commuting. Utility cooking. Spend less, way less.

- Various people that I have come across living life in unique and fearless ways, especially through http://couchsurfing.org
Secondary Inspirations:

- Rich Dad, Poor Dad - The importance of assets. Cash flow diagrams. Passive income streams.

- 7 Habits of Highly Effective People - Effectiveness not efficiency. Active Listening. Important not Urgent. Interpersonal as a foremost priority.

- The Happiness Hypothesis & Stumbling on Happiness - Money and possessions objectively do not make people happy. Personal connections make people happy.

- The 4 Hour Work Week - 80/20. Ask for forgiveness not permission. Muses. Geo-arbitrage. Accept the worst case and then take risks.

- Vagabonding - You don't need money for amazing experiences. Problems are opportunities for adventure.


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akratic
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Post by akratic » Tue Jul 27, 2010 9:29 pm

Where I started on 1 February 2010:

- 2x projected yearly expenses in assets

- 50% + inflation ROI needed to retire

- 12.5% of my way to ERE

- 3.06 projected years to FI
Where I'm at as of 1 July 2010

- 8.3x projected yearly expenses in assets

- 12% + inflation ROI needed to retire

- 33% of my way to ERE

- 1.43 projected years to FI

Analysis:
June 2010 was by far my best spending month ever; it remains to be seen if it can be reproduced. I calculate my projections based on continuing my previous month performance indefinitely, which means this might be overly optimistic. In particular, I suspect July will be a step backwards. We'll see.
One thing is for sure, it's the decrease in spending rather than the increase in assets that is driving down the years to FI number so quickly.
Here are the categories that have changed the most since I started pursuing ERE, and the amount spent in each by month:
Housing: $700, $700, $800, $880, $416 (in the fifth month I moved into a $350/mo + utilities apartment!)
Food: $245, $305, $260, $103, $122 (in the fourth month I learned how to cook!)
Transit: $169, $50, $17, $46, $0 (in the second month I got a bicycle!)
Health Insurance: $137, $137, $20, $20, $20 (in the third month I canceled my self-employed health insurance and got on my new employer's plan. Eventually this cost will go back up.)
Although I've made big improvements on Housing and Food spending, they still represent the areas where I think I can cut my expenses the most, along with possibly Gifts, which is my fourth highest expense after Housing, Food, and Travel at $75/month on average. (I am unwilling to cut Travel.)
I look forward to your comments, and to running the numbers again on 1 August 2010.


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JohnnyH
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Post by JohnnyH » Tue Jul 27, 2010 9:35 pm

Fantastic thread. You're kicking ass... I see "GRAPHS" but there are no graphs?! Could you host them somewhere so we can gander? I'd suggest Dropbox as an excellent image host.
Wow, you "saved" 6.3 times your yearly expenses in 6 months by altering your lifestyle. Extreme!
EDIT: ah, I can see them now -excellent, thank you.
EDIT 2: sorry for edits, don't want to clutter your great thread too much... But, are you including your PT and side projects as investment income? If not you're very close indeed.


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akratic
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Post by akratic » Tue Jul 27, 2010 9:38 pm

Thanks JohnnyH. I'm working on the graphs. It's tough to get them narrow enough to fit on the forum layout. I should have it figured out pretty soon though.


Steve Austin
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Post by Steve Austin » Tue Jul 27, 2010 11:06 pm

Re: Secondary Goal 2): please define 'high' (probability).
Re: your projections, perhaps you'd consider trailing 3- or 6-months expenses rather than previous month's expenses.


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Post by il-besa » Tue Jul 27, 2010 11:33 pm

Amazing!!!!

Please keep on doing this, I love it!
It's really inspirational and clear


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akratic
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Post by akratic » Wed Jul 28, 2010 3:28 am

@JohnnyH: I'm not including side income or business income in anything, so you're right, I might be closer than I appear. I like the example Jacob set where he was doubly covered when he left his job: once by investment income and again by side/part-time income.
There's a longer story here though. I actually segment my money into three categories: FI money towards regular expenses, LLC money for my existing and future businesses, and NG (no guilt) money that I can optionally accumulate on the side for one-time purchases like tickets to Brazil. This journal and the graphs are just the FI money category, which is acquired through my 9-5, and spent on regular expenses like housing, food, weekend trips, etc.
Maybe I should talk more about this in the future, because I haven't seen anyone do it before, and I guess you could even consider it "cheating", but it works for me. In particular, I might one day be financially independent in the sense that all my normal expenses are covered by my investments, but I could still need to work for a certain number of hours if I wanted to make a one-time big purchase.
@Steve Austin: I think you're right that a 3-6 month average might be better because it would have less volatility. For now though I actually enjoy the numbers jumping all over the place, because it makes the decisions that I make month to month appear to have more of an impact, which helps motivate me. For sure the first time the numbers say I've hit FI, I won't actually have hit it... I'll need for the average to hit it... but it will be motivational!
The definition of 'high probability' I'm used to using is 95%. Of course, I'd like the probability of success to be as high as possible though. Ultimately it will probably be easier to accumulate enough assets for 3% FI than it would be to guarantee that my portfolio generates inflation + 4%. But we'll see.
@il-besa: thanks for the nice feedback!


Concojones
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Post by Concojones » Wed Jul 28, 2010 10:43 am

Ah, I love ERE plans/journals! Thanks for posting yours, akratic! I'm trying to work out the math behind your plan, and there's something I don't get, namely how you can grow your savings so fast. Lemme explain. Investment income went from $150 to $400/month in 4 months (roughly), I assume that means assets went from 50k to 120k, or +70k in 4 months, or 210k/year (roughly). Your "projected years to FI" suggest something similar (saving 160k/year). My question is how someone with my age and education (I'm an engineer too) can make 250k a year in a 9-5 job? And then there are other side jobs, you say? LOL, I'm intrigued! Sorry if I've uncovered something you didn't want to share. I'm just trying to understand (that's what we engineers are good at, right?).
Anyway, exciting story. You're going to be there quickly! Is your life going to change once you hit FI?


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akratic
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Post by akratic » Wed Jul 28, 2010 6:05 pm

Yeah, if it were me I'd try to reverse engineer the graphs too. I'm not really comfortable discussing specifics though. I'll tell you this much: I'm an engineer in the finance industry, which is the most lucrative thing an engineer can do (other than start a wildly successful company).
I will say your reverse engineering has overstated things a bit though, primarily because the graphs started with a huge boost from a signing bonus that won't be coming again. My projections also include a projected end-of-year bonus that is really difficult to quantify up front so I've made a wild guess that could easily be wrong. Not factoring in the end of year bonus wouldn't work though, since it's such a large component of the compensation in the finance industry.
Here, check this out -- http://www.glassdoor.com/Salary/Citadel ... O19,35.htm -- Senior Developers at Citadel make $115k - $150k base salary with a bonus that puts their total compensation at $125k - $195k. For what it's worth, Citadel also pays for three meals a day and work clothes and moving costs, etc. I've worked hard enough in my career to where I could be a Senior Developer at Citadel, but instead I've chosen another job that will probably pay less but gives me more time.
The only reason I'm able to have any side-income whatsoever is that I took 1.5 years "off" before starting this job to travel and try to start companies. I was hoping that would lead to financial independence, but unfortunately it did not, just to lots of life lessons and some side income that continues to this day.
In fact, Jacob is largely responsible for me coming back to a 9-5. His ERE idea convinced me that I could get to financial independence in a palatable amount of time with a 9-5. Before that I thought starting a successful business would be the only way for me to get there quickly.
Plans after achieving FI might include:

- getting a PhD in Philosophy

- buying a round the world ticket and traveling

- teaching high school calculus

- buying a sail boat and living in it

- staying the course and achieving a more comfortable or probable version of FI

- making websites and/or iPhone apps (I'm especially interested in making ones that would make the world a better place but would have no chance of making money. I feel like I can't fully pursue that without FI and that annoys me.)
These would be chosen for fun, not the money, which would be the really exciting part!


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Post by Concojones » Wed Jul 28, 2010 7:48 pm

Well, well, look at that! :-) I started out in finance too, but didn't stay in it long enough for my salary to explode. I almost decided to become a trader (partly for the excitement, partly for the money) but then I realized I'd rather do something enterprising with people. Next job was -- guess what -- teaching calculus in high school! FYI: it was fun and engaging, my work week just flied by, you had to keep the course really simple though, and I would have liked more freedom to do my own thing in teaching. I did this while I was figuring out what career to choose next. Right now I'm trying to go back to engineering to build up some marketable experience and see the world. Ultimately, I want to be an entrepreneur, just for fun (basically to make a part of the world, namely your company, a better place).
Meanwhile I'm saving for FI, just as a backup. I relate to your frustration that we can't do certain things without FI, but if I'm really honest with myself, I think that's a myth and the real obstacle is my ego that prefers status and a high paying career over an uncertain future.


Kevin M
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Post by Kevin M » Wed Jul 28, 2010 8:14 pm

Love it, what progress in a short time. Are you comfortable disclosing where you live now or did I miss it above? Might help with some recommendations for Secondary Goal #3.


Concojones
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Post by Concojones » Wed Jul 28, 2010 8:23 pm

Chicago. All that matters though is that it's a large US city and a financial center.


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akratic
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Post by akratic » Wed Jul 28, 2010 10:35 pm

@Kevin M: Yeah, I live in Chicago. What I'd really like to do is live in a huge house with tons of roommates, both to save money and to meet people (I just moved to Chicago for this job 6 months ago). Basically what I want is to live in something like a college dorm. I've been looking for something like that, but I can't seem to find it. My needs are much lower than anything I can find on craigslist.
@Concojones: How were you able to just walk into teaching without certification? Were they a desperate public school? Or private?
By the way, I really like all the odd similarities in the ERE community: bicycles, sailboats, teaching, self-sufficiency, computers, learning, enjoying challenges, entrepreneurship, etc. For example, I think we'd get along if we were to meet in person. I think one of the things tying everyone here together is being very ambitious, but not about money or possessions -- ambitious about life.
I can definitely relate to the worry about "needing FI before doing x" might be just an excuse or rationalization. That said, during my time of trying to start a company, I was regularly confronted with the need to make compromises in order to make money.
For example, there's an idea for collaborative foreign language learning that I'd really like to pursue, but as a non-profit. When I had no income and was really trying to generate one, I couldn't put much energy into an idea like that. When I'm FI I will be able to! For now I can put occasional nights and weekends, but it's low quality time.


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Post by Steve Austin » Wed Jul 28, 2010 11:47 pm

I am enjoying this damn thoughtful thread. Especially like akratic's suggestion of the descriptor list that loosely links many adherents here. I think it should be lengthened and perhaps adjudicated with the digg-bury mechanism, and see what filters up from us collectively. I'll start another thread for this tangent, but thought it appropriate to post at the point of inspiration.


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Post by jacob » Wed Jul 28, 2010 11:51 pm

@Steve - Maybe along with an explanation of what "adjudicated with the digg-bury mechanism" means :)


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Post by Steve Austin » Wed Jul 28, 2010 11:56 pm

A bad habit of mine trying to abbreviate (the US Armed Forces do it for fun in the form of acronyms) things, but referring to a "function that consists of voting stories up [digg] or down [bury]" ( http://en.wikipedia.org/wiki/Digg ). In the case of my suggestion, it's voting descriptors up or down, as a way to establish some rough cardinality, like how wordl'ing ( http://en.wikipedia.org/wiki/Wordle ) gives a range of font size according to frequency.


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Post by Concojones » Fri Jul 30, 2010 5:16 am

@Akratic: where I live (Belgium) a teaching certificate is desirable but not a requirement. Add to that the fact that math teachers are hard to find...
And now that you're mentioning bikes, sailboats, learning and challenges: I like those too! ;-) Yeah I think a lot of us would get along quite well. I'll keep an eye on the meet-up announcements here.
RE "needing FI before doing x might be an excuse": after all, Jacob proved he could get by by working just 1 hour a day - it still continues to amaze me :-) On the other hand, in your case, go for it (FI) as it comes at little cost. Just try not to get trapped (golden handcuffs).


Kevin M
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Post by Kevin M » Fri Jul 30, 2010 8:25 pm

@Akratic - I agree with the college dorm thing (although my wife may disagree). Maybe we just need to find a college that's gone under and buy a couple of the dorms? My buddies always joked we'd buy a big apartment complex or compound and all live there if one of us ever won the lottery.


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Post by Seabourne » Fri Jul 30, 2010 10:41 pm

Akratic, I'm in Chicago as well - if you're interested in sailing, let me know. My second job is working on sailboats, can bring you out on the water sometime this summer. Would enjoy meeting other people with similar outlook, though I'm less looking for ERE than FIRE. Plan to have a lot of travel and keep my place in Chicago as a home base, but ERE will be my baseline for FU money.


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akratic
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Post by akratic » Sat Jul 31, 2010 11:04 pm

@Seabourne, YES! Yes to the sailing and yes to meeting like-minded people in Chicago. Email me at ere@akratic.com
@Kevin M, yeah, I have a similar dream actually, except it involves buying a hostel in a really cheap country and putting my friends up in it for free, but otherwise running the hostel for fun/profit.
Part of me also wants to try to buy like a big loft space in Chicago and configure it like a dorm: a shared kitchen, bathroom, and living room, plus like 8-10 100-200sq ft rooms. Wouldn't even need a whole building. It's still more money than I have to throw around right now though, although I'm pretty confident the rooms would rent out quickly.


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akratic
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Post by akratic » Sat Jul 31, 2010 11:47 pm

Where I'm at as of 1 August 2010

- 7.1x projected yearly expenses in assets

- 14% + inflation ROI needed to retire

- 28% of my way to ERE

- 1.93 projected years to FI

Analysis:
I knew July was going to be a step in the wrong direction. In July I flew to San Francisco and then spent ten days road-tripping back from there to Chicago, stopping at a bunch of amazing places on the way. If not for all the expenses associated with that trip, I would have done really well this month. I'm still surprised the road-trip didn't end up costing more than it did.
I have been aggressively pursuing ERE for six months now. Here are my average expenses over the last six months:

Housing: $650

Travel: $242

Food: $220

Gifts: $72

Transit: $55

Everything Else: $254

Total: $1546
And here is my current asset allocation:

63% cash

33% stocks

04% bonds
I really need to get serious about investing my money instead of letting it just sit in cash. I'm definitely intrigued by the Permanent Portfolio, and I've been slowly slogging my way through this thread. One thing I came realize during reading that thread is my current cash-heavy asset allocation is actually akin to speculating that we are in deflation/devaluation market conditions. That's not what I intended though: I intended to remain on the sidelines until I knew more about investing and was comfortable making my own decisions.
The investment income you see on the graphs is just assuming a 4% return, not actual hard numbers.


Robert Muir
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Post by Robert Muir » Sun Aug 01, 2010 12:45 am

IMHO, there's nothing wrong with cash in this very strange market. The only thing holding equity prices up is the 0% interest rates. I think your plan for having cash in conjunction with your education is a good one.


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Post by George the original one » Sun Aug 01, 2010 1:02 am

Robert Muir -
If you look at the money flows for ETFs, I think you'll see that 0% interest rates and fear of stocks have driven folks into bond funds. For instance, my favorite municipal bond fund is now trading at a 7% premium to its net asset value (current yield is 6.75%). Which means stocks are probably undervalued unless you truly believe they're in for another decline.


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