SWB's path to financial independence

Where are you and where are you going?
SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Tue Feb 13, 2018 4:15 pm

@fips That is a great list. I'm going to make use of it when considering future possibilities too. Right now, I think my best bet is having my side business become my full time job as it covers all of those very well. So at the very least, if I were to switch my day job, I want it to be one that doesn't negatively impact progress on the side thing. And this potential job would -- I think it would be very demanding of time and energy. I've had a bit of a slump since the holidays on my willingness to put time into my side business. But I think that is more related to how we are working on it and I just need to get over that (or figure out the problem) and keep going. It's just hard though -- if I start another business, I'm going to very very wary of putting in a lot of upfront time and effort in before getting feedback from the market/customers. We just bit off a big project and we should have probably gone for something smaller. But it's a bit late now and we are making progress.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Thu Mar 01, 2018 10:12 pm

Well I had a change of heart. I spent a long time soul searching and decided this opportunity is one I want to take. I was able to negotiate to get what I wanted for the most part. At my current employer, the pace is very slow. It's just not in my nature to work at such a glacial pace. So I'm going to jump back into the sea and climb out on another island which seems a little mysterious and scary. I'll let you know if I regret it :). It's not a done deal yet so could all go away.

Speaking of seas, watching the net worth rise and fall with the stock market swings is kind of like being on a wavy ocean. It's funny to think when your net worth is small, the waves are small but as your holdings grow and grow, the waves become bigger and bigger. I expect those that pay attention to this change. We all know it's not real money until the investment is liquidated. But it is still interesting to me what impact that has on us.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Thu Mar 01, 2018 10:20 pm

Progress: 35.1% ($421,600/1,200,000)
Weight: 216 pounds
Goal weight: 192 (24 pounds to go)
Side business goal: 1 out of 50 schools (some pending)

Net worth went down a little with the stock market slump but I'm not complaining. This month I went on a work retreat in sunny California and the family came along. I stayed on my diet however some meals were catered. I didn't eat anything that was obviously carby but some sauces on say steak were hard to be certain about. For a week or two after the trip, I had a fair number of cravings for food so I suspect there was some carbs in what I ate. My weight loss also tapered off for a bit. Although again I suspect this is due to CICO or calorie in, calorie out. By which I mean as my body gets lighter, it needs less calories yet I still am eating roughly the same food so the weight loss is going to slow. I'm fine with this -- I don't have any flabby or hanging skin but I think it would be good to take it slow the rest of the way.

For the side business, we had the chance to get in front of a bunch of potential customers and get the word out. We have been heads down focusing on one school but we're ready to add more schools. There is still a lot of work to do on new things that we know some schools want. Overall, I'm still optimistic about the whole thing. I'd really like to hit 5 schools for the next school year. I think we definitely have one more (so 2 of 5) and we have some in the early stages. The product we have is not easy to switch in or out of so there is some work to get people aboard and the schools are cautious as they should be. What we really have to crack is sales but that is mostly in the court of my business partner and he is very new to that game.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sat Mar 10, 2018 12:28 pm

FBeyer wrote:
Sat Mar 10, 2018 2:11 am
So take it easy. Stash away some pennies, and declutter your house, find a cheap place to live, and restructure your existence first. :mrgreen:
So that part about "find a cheap place to live" (taken from thread) is still what I'm focusing the most on right now. We're still looking for a local house to buy. Right now, our monthly housing cost without utilities is roughly $1750 (that is +100 over rent due to odd utility problem). So to reduce our costs, we can go buy a house that is asking $175k but in this market will go for maybe $183-187k. We put down 20% or about $36k and then our monthly cost would be $1,026/month with taxes and insurance (if Redfin is to be believed). If we take maintenance as a cost of 10% of value per year or $1800/year

If we stay for 5 years, we come out as 5 * 12 * ($1750 - ($1026 + $1800/12)) = $34k saved over renting (I don't include the loss of investment return on the money used for the down payment). The interesting thing is that number is probably close to how much the value of that particular house as gone up in the past year or two (most have increased in value even more). So if we stay for 5 years and want to move and the market drops, we're stuck renting it out or taking a loss.

From a practical standpoint, rentals get annoying because it's pretty much "what you see is what you get" so if that sink faucet is a total piece of garbage, you can pay out of pocket to replace it or just live with it. If you want a very well maintained rental, I think you have to pay a premium for it. Our current house is "good enough "but it has some annoying problems and some potentially more serious problems (might have a mold problem).

But buying roots us here too -- if the economy completely collapses and I lose my job and can't find work at a decent rate, I'd prefer to go off to Mexico or Costa Rica instead of moping around here. So I see two downsides to buying:

* risk of housing market adjusting - I put this as a high chance of happening within the next 5 years
* being rooted in place and recession - I put this at a lower chance of happening than the above but with low confidence

The pressure on the local market is strong enough that I think there are no stones unturned in terms of people looking for the same things we are. So finding a diamond seems increasingly unlikely. Building would be a good option however supposedly there is a big shortage of construction workers so demand is high. If I was FI/ER already, one option would be to have the shell built and finish out the inside ourselves or with contractors. But I'm not yet. Land prices seem reasonable for what we want.

That leaves me thinking that buying in this local market is a bad idea. But I don't see a way to lower our housing costs while still getting what we are getting now or a rough equivalent. We need to go to an apartment or move further away or get lucky and find a below market rental (and make it work -- ie if faucet is crap, just replace it if okayed by landlord). That last option seems like the most realistic option. But with the listings become more active with winter going away, we're going to keep looking for a potential house to buy just in case. And we still need to price/research local modular housing options as that might be a way around the labor shortage.

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Family father
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Re: SWB's path to financial independence

Post by Family father » Mon Mar 12, 2018 8:54 am

Excuse me SWB, but there's something I don't understand:

Renting is 1.750 x 12 = 21.000 $ per year
Buying is 185.000 $ (=8.8 years' rent???)

I understand the renting potential of the 185k house won't be 1.750 $/m, is it?

Besides, following your numbers, which part of the 1.026 $ per month will be principal?

Shouldn't your saving be 5 x 12 x (1750 - (interests + 1800/12))?

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Mon Mar 12, 2018 9:40 am

In the purchase, I'm using the Redfin numbers which are 30 year mortgage payment + property tax payment + house insurance. Then I was adding 10%/year for maintenance (but that is probably too high). I figured the utilities are about the same. For the interest, I realized I lose the interest on the down payment amount but then am able to save more each month so I gain interest there. The number I'm particularly interested in is maximizing savings so my focus is on reducing the total monthly cost of housing.

Here is an example of where I'm getting the numbers:

https://www.redfin.com/MI/Belleville/46 ... e/98938638

There is a "Payment Calculator" and that shows:

$738 to principal and interest
$185 to property taxes
$97 to homeowner's insurance

So $1,019/month on a 30 year mortgage with 4.36% interest. Total amount mortgaged is $185,000 - $37,000 (down payment) = $148,000.

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Re: SWB's path to financial independence

Post by Family father » Mon Mar 12, 2018 5:45 pm

You are dealing here with two different decisions:

a) rent vs buy

Here you can see the amortization table .

With your data it means on average (for the first 5 years) $ 220 every month to principal and $ 518 for the bank.

So your calculation should look like: 5 x 12 x (1750 - (1026 - 220 + 1800/12)) = 47.640 $

Then you should factor what would happen after your 5 year given time, etc..

Anyway, the rent/own dilemma depends mostly in the renting PER (price-earning ratio), and in this case, if you had 185.000 $ it would make sense to buy the house and rent it: earning 1.750 x 12 = 21.000 $ every year for an investment of 185.000 $ (11,3%) leaves a lot of room to pay taxes and so on.. :)

b) go into debt or not
SavingWithBabies wrote:
Mon Mar 12, 2018 9:40 am
For the interest, I realized I lose the interest on the down payment amount but then am able to save more each month so I gain interest there.
How much do you do from your savings investing?

If you do more than 4,37% it doesn't make sense to make any unnecessary down payment: you get more from your savings!

But if you don't make more than 4,37%, then it makes sense to put as much as possible in your down payment: it's your best investment!

;)

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Tue Mar 13, 2018 9:25 am

Ah, I see what you mean -- you're point is that $518/month is saved money too as I have value in the house. That is a good point. I've focused purely on how it impacts our savings but long term that is part of the net worth growth too.

My problem is that I think the local market is overpriced and will likely correct (go down in value) in the next 5 years. We also have a chance (say 40%, really don't know but big) that we will move in 5 years to another city.

But I agree with your point about principle. I'll do a more careful calculation taking it into account. For down payment, here if I do not put down 20%, I have to pay PMI or another insurance fee each month for life of mortgage or until I refinance it after have enough ownership. That fee appears to be $100+/month so I would put 20% down.

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Re: SWB's path to financial independence

Post by Family father » Tue Mar 13, 2018 10:40 am

Glad it helped!

;)
SavingWithBabies wrote:
Tue Mar 13, 2018 9:25 am

My problem is that I think the local market is overpriced and will likely correct (go down in value) in the next 5 years.
If the market correction is due to BIG change in demand / offer (expected large decrease of population or huge increase in offer due to construction boom) it would affect both rent and buy prices, and this scenario would surely be a NO BUY

If the offer / demand stays more or less the same and the problem is that prices are too high (and thus the correction will be done towards margin), you must check the rent / own balance: people need to live, so they decide either to rent or buy.

How much could you rent the house for now? If it falls close to those 1.750 $ vs 1.026 (plus some) $ buying: what will people decide about renting / buying? with those numbers people is going to keep pushing towards buying so chances are that the correction will not happen unless rental market drops prices..
SavingWithBabies wrote:
Tue Mar 13, 2018 9:25 am
We also have a chance (say 40%, really don't know but big) that we will move in 5 years to another city.


What will your options be then?

Is renting an option? (if the rent market is so hot, it may make sense)

If renting is not an option, then only selling will be: which is your potential loss? how is it related to the potential savings you have due to purchasing? (substract the average returns you would get if you put the money in other investments) Does it make sense?

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Re: SWB's path to financial independence

Post by SavingWithBabies » Tue Mar 13, 2018 8:37 pm

Those are good points. It's tricky too because within Ann Arbor is the most desirable because of the public schools (although now there is "school of choice" with lottery for those that want to attend AA schools but don't live in AA -- but it is a lottery so no guarantee) and lots of people want to live there. The prices and taxes are higher in AA but I also suspect it will fall not as much, if at all, compared to the rest of the area if there is a slowdown. So it might be less risky to spend more to buy there.

If we have to sell in 5 years, we could rent it out however we might need to move 4+ hours away and then it would be complicated so have to pay to have it managed. So yes, the question is what is the potential loss.

I think this helps a lot -- I need to sit down and run the numbers. Then project both good/okay/bad scenarios and wrap my ahead around the possible outcomes. Your point about principal is important though as it makes it not quite as bad I was fearing. But I'll try projecting it with actual numbers.

My gut feeling is we will stay no matter what. But we might end up sending our kids to public school so that means if we buy in a cheaper area, we would be subject to the lottery or would have to move to one of the 3 areas with better public schools. We would be close so we could rent out the first house in this scenario. But maybe it is better to just buy in a good school district so don't have to worry even if it costs a little more. Running the numbers will help make it clearer.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Mon Apr 02, 2018 3:48 pm

March 2018

Progress: 35.4% ($425,480/1,200,000)
Weight: 218 pounds (26 pounds to goal weight of 192)
Side business goal: 1 out of 50 schools (2 potential/pending of which 1 looks definite but nothing signed yet)

I took a contract job offer. It has some risk however I was able to negotiate the compensation up to the point that I was comfortable with the risk. Now I have to give notice to the day job. Biggest risk is the contract fizzles and I'm left paying for health insurance (COBRA) until I land a new gig. I am happy that at least I'll be able to put a full year onto the resume for current company (I really didn't want to put less).

Side business is still chugging along. Almost certain we're at two schools for the next school year. I hoped we might get to 5. Still a chance of a couple more. I'm coming to accept this may or may not work out as a full income replacement (goal for that was within 10 years). It really needs to grow quicker. But I'm not willing to give up on it yet. Particularly as it's getting close to the point that we're done building it out (new features). Once that is done, I can lower my ongoing time investment although doing some refactoring/cleanup of existing things will be needed (but that is easier to do slowly over time).

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Tue May 01, 2018 9:33 pm

April 2018

Progress: on target *
Weight: 209.8 (17.8 pounds to goal weight of 192)
Side business goal: 1 out of 50 schools (3-4 potentials, 1 supposedly done but not signed yet, 1 seems likely but never know)

Happy the weight plateau finally broke. From following other people on keto, it seems typical to hit at least one weight plateau where it just takes time to break through. I was assuming it would pass in time and so it seems to have!

* Kind of complicated situation with income that should be figured out in 3-4 months and then I'll go back to actual numbers or at least percentage. Although I do see why people grow weary with the numbers. I might reboot again and go to the progress to SWR approach that abstracts away actual numbers.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Wed May 09, 2018 1:46 pm

Edit: I came back to add this short summary: I agree now that you are worth what the business will pay you however it took seeing that different businesses/people will value different things from you so there is often a higher paying opportunity if you can find it.

I've been mulling over for a while now the whole employee compensation thing. I realized my disagreements are probably mostly due to semantics. I think it boils down to this:

You are worth to them what they will pay for you. The job market does tend towards a general band of what you can get paid. But there are exceptions to this if you're in the right place at the right time. So that last bit is what I've spent a while thinking about. To be in the right place at the right time is key but it requires some things:

1) People have to know you exist and what your proficiency is.
2) Your value proposition has to be obvious.
3) You might need to take on more risk.
4) Negotiating skills become very important because outside of the band, value is more subjective or difficult and requires selling up yourself if the other side isn't quite seeing the value yet. And it requires walking away if they still don't see it.
5) Work might become intermittent if you target the top dollar per amount of time. This to me is just one more reason to become financially independent so I can focus on my own side businesses and keep a hustle of getting to work in the specific technical niche I'm really good in at high compensation when there is demand.

To make #5 happen, I need #1 and #2. I'm fine with risk (#3). I'm working on #4 but I've realized I've gotten quite good at it (although my impression is the software engineering crowd tends to poor skills in this area so maybe I'm just better in comparison).

I do see some obvious ways to work more on #1 and #2. I'm going to do so over time. Some of this is more open source projects in my niche but some is starting a formal entity (business) and establishing a reputation. These things are hard but I might get some spillover from the other projects I'm working on and it's a long term thing.

My whole point in posting though was I realized that I was thinking about it wrong. It's not that if the company wants to pay me $150k, I'm worth $150k. No, it means to that company I'm worth $150k. There is a lot of frippery around software engineers which I think is caused by highly compensated individuals having a higher than perhaps deserved opinion of themselves (similar to other highly compensated industries?). But at the core, the company is really hiring you to get something done that they need done. Do they care about your dreams and ambitions? Only so far as trying to enable them to keep you happy so you stay working for them (okay, maybe some people in some places really do care beyond but I don't think it's reasonable to expect that).

But if I can more clearly communicate why I am worth more because of what I can get done for them in a much shorter amount of time (due to advantages in technical niche -- both perceived and real), then I can be worth more. I'm already seeing that in practice. Which I don't want to describe until 3-4 months down the road as a kind of retro of "what just happened."
Last edited by SavingWithBabies on Sat May 19, 2018 8:37 pm, edited 1 time in total.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Sat May 19, 2018 8:34 pm

Hit the last day of a church rummage sale and scored a boxed copy of P90X with all the DVDs, some books and a garage door opener that I gambled would work for the missing one at our rental. And it does! That was a very happy coincidence and made both of us, particularly my wife though, very happy. I paid less for everything than I would have for just a replacement remote on eBay so that worked out in the end. Small victories.

Now I have that copy of P90X staring me down. I need to strengthen my core first as I really don't want to injure my back but I did some googling and it looks like it has some good core exercises that I could start with. I'm lacking a TV but hopefully a laptop screen won't be a hindrance.

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