SWB's path to financial independence

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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!

;)

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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 hard trying to decide between good school districts with more expensive housing and school districts that aren't ranked so highly yet have more affordable housing.

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.
Last edited by SavingWithBabies on Tue Jun 19, 2018 10:35 pm, edited 1 time in total.

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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).

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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.

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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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Re: SWB's path to financial independence

Post by SavingWithBabies » Sat May 26, 2018 12:57 am

Side business has contract signed from second customer! Wahoo! That doubles our revenue. Really exciting to go from 1 to 2. It's been a long time coming. But things are starting to pick up steam.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sun May 27, 2018 10:26 am

We're going to go look at an unusual property for this area in that it is a 2 bedroom main house with a 1 bedroom apartment and another studio / almost 1 bedroom (suspect missing closet but has separate sleeping room). The price is steep however it is in a good location for us along with good school district and the rentals would reduce our monthly housing cost quite a bit (as in, perhaps lower than our monthly cost renting our current 3 bed house). One idea is to use the studio as a home office but also have it on AirBnB and available for family/guests. I would have a not as convenient (but still walkable) backup office location I could use if needed.

Long term plan is still leaning towards homesteading with a house in the country and 5+ acres. But after looking at all our options for quite a while, a house in the city definitely has plenty of attractions. If we were FI/ER, it is tempted to combine a property like the above with a cottage in the country farther away were everything is much more affordable. I really hope SpaceX is successful as it will open up so many options for those of us who want to work remote from rural areas.

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Re: SWB's path to financial independence

Post by jacob » Sun May 27, 2018 11:17 am

SavingWithBabies wrote:
Sun May 27, 2018 10:26 am
I really hope SpaceX is successful as it will open up so many options for those of us who want to work remote from rural areas.
How?

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sun May 27, 2018 12:06 pm

@jacob Oops, I meant Starlink -- SpaceX is needed for Starlink or at least seems to be part of the reason SpaceX is happening.

Also, we've had satellite internet before but this is different: SpaceX’s prototype internet satellites are good enough for gaming, Elon Musk says.

In looking locally for land to build on and/or existing homesteads, one of the problems has been some do not have broadband internet. So even locally it would be useful. Although it really depends on the pricing model but my understanding is it should be a much denser network (way more satellites) and with the lower orbiting, hopefully much higher bandwidth.

That said, many of these properties without broadband supposedly have LTE or high speed mobile-based data. I have a little device that I can use for 20 GB of that data month and then more at lower speeds. But that isn't quite enough for me to work remote due to demands for video meetings. I think there are some other subsidized LTE options for those that have no other choice but it makes me nervous to put my work on the line to test that out.

There is a even better option than hoping for Starlink though. In some areas close by, people are banding together into coops to bring fiber to the home. Here is an example of that: Lyndon Township. However, I suspect it will be a long time before say the Upper Peninsula of Michigan is densely covered with fiber. So something like Starlink could be a big deal there.

SavingWithBabies
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Re: SWB's path to financial independence

Post by SavingWithBabies » Sun May 27, 2018 11:18 pm

In relation to rural broadband, I found AT&T actually offers a nice LTE data package:

https://www.att.com/internet/fixed-wireless.html

I think that is enough data that I could work from home over LTE for a whole month. Right now, I have a dongle from AT&T that gives me 20 GB/month for $23 but $60 for 170 GB plus better hardware (fixed antenna solution) is interesting.

Unfortunately, the unusual property mentioned above was mediocre. Definitely a bit of a hack job on turning a regular house into a 3 unit. Perhaps most obvious was the heating and cooling issues but the overall quality of the house (ie foundation) was not cutting it for the premium asking price. It is interesting to see because the owner clearly had a nice thing going on cash-flow wise. But now they want to sell it for more than you can bring in renting 3 units. The cost to convert it back to a regular house would be a bit excessive with some odd flows between the different units (and that cost isn't factored into the asking price either). So it doesn't really make sense except "too hot a market". I am at the acceptance stage of believing it might be best to just rent for the next 5 years. That or something unusual. I have been researching modular homes but have more work to do on that.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sat Jun 02, 2018 10:48 pm

Progress: ~40.9% ($491,500/1,200,000)
Weight: 215 pounds
Goal weight: 192 (23 pounds to go)
Side business goal: 2 out of 50 schools (couple potential, one almost closed but pushed a year)

I had false readings on my weight -- my scale tends to read low when the battery gets low but it doesn't tell you that until it's been reading low for a while. So I put in a new battery and I'm ~+5 pounds.

Side business has signed contract from second school along with check. Finally! Still not counting any of this in my net worth until the side business pays me. Which will probably be soon -- small dividends at first (maybe around $4k/year).

Net worth zoomed up. The numbers aren't quite right because there is a big chunk of 1099 cash and I'll have to pay taxes on that. I'm in a bit of an odd yet lucrative situation and I'm just going to ride it out and journal about it later when the dust settles.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sun Jun 10, 2018 8:53 pm

IlliniDave made an interesting post today in his journal: The Purpose of Safety Margin is to Render the Forecast Unnecessary. I had some thoughts about this but didn't want to hijack his journal so I'm going to make a short reply there and reply in more depth here.

I'm glad you don't get much pushback here for pointing out the risk some take. When I lowered my goal, you chimed in and I did take it to heart. I didn't raise my goal but I have been thinking about it.

I realized my goal more of a target than anything else. It's high enough that it is a going to be some effort to get there but not so high that it feels like it is never going to be within reach. Initially, my thinking was at that point I would take more risk in my career and/or employment choices however I've started to realize what I've accumulated so far has provided some security. So I've already started to take more risks.

The other idea was, at goal, to focus more on side businesses. At that point, my wife will likely have been back to work for a number of years and we'd be getting health insurance through her employer. So I'd no longer have to worry about health insurance when trying contracting opportunities. The side businesses are fun and interesting however that route has lost some luster so I think I'd prefer the two pronged approach of contracting when the contracting is good and otherwise working on side businesses. We'll see.

But, unless things go really bad, the main goal is not touching the investments and letting them compound. I too see no harm in passing on some of my potential net worth to future generations. Perhaps the thing both of us have is we don't hate our jobs/careers as many seem to do. I feel extremely fortunate that something I love, even after doing it professional for more than a decade, still interests me. I don't trust that my field will remain as lucrative as it is now however I am optimistic it will remain a good field to work in. I think it's good to hedge your bets and work with the web of goals to make choices that leave the future paths open to oneself. That is what I hope to do and part of why I find this forum very useful as it encourages reflection upon life.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sun Jun 17, 2018 3:40 pm

We hit just over $500k net worth yesterday. Still a chunk of taxes to come out of it but in a day or two, should be clear to $500k even with taxes.

I know it's just a number but I'm excited my hustle/luck got us from $400k to $500k in about 6 months. That increased income is not going to last long term (at least not from the current gig) but that +$100k makes a big difference on FIRECalc(*). It's also made me enthusiastic about figuring out how to get more contracting work long term. I know it's fickle and if the economy turns, it's likely to dry up but...

* although most of that increase is sitting in cash as I'm still mulling over how/if to invest it

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Re: SWB's path to financial independence

Post by SavingWithBabies » Sat Jun 30, 2018 8:33 pm

The black raspberries are ripe here! We've been foraging along a bicycle path in the city park. We did so last year too and made jam. I'm still on keto diet so no jam for me but I'll eat a few berries. The wild ones are wonderful. Really hot and humid here though and we went a little too late so at the end I almost got eaten alive by mosquitos.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Mon Jul 09, 2018 9:51 am

Progress: 44% ($531,000/1,200,000)
Spending: $46,000/year (family of 4)
Weigh goal: 216 pounds (goal 192)
Side business goal: 2 schools (50+ desired)


Savings

Net worth has increased quite a bit due to the unexpected windfall of the contract work. So far, before taxes, it's brought in about $70k and it should go for another month or two and once all the invoices are paid, should be little more than $100k. I wasn't expecting this to come along and I've disrupted my summer to some degree to do it but I couldn't say no. It has given me more hope for going the contract route however I know getting clients and/or hot/cold demand can be a problem so I'm not quite ready to try that full time. But if my employment situation changed, I would try it.

We are sitting on a lot of cash. All the contract income is still in cash. The excess day job income is sitting in cash right now too and that rate is going to increase as the 401k is maxed out for 2018. It looks like we'll be above income limits for Roth IRA contributions. Probably just going to hold cash for a while and it is a great problem to have but... I need to go back to learning more about investing.

Spending

No major purchases. I upgraded our mifi device to something that has faster speeds and can take external antennas. The goal is to try living in a travel trailer for a couple of weeks to a month and see if I can work remote in that situation and if our family life is compatible with it. If we really like it, we could do a big downsizing purge in possessions and try doing that full time for a while. But in between, would be a smaller purge and storing the rest so we can move out of our rented house. But baby steps -- I don't want to go too far before figuring out if the basics work for us (for example, maybe we would be more happy renting an apartment and living in it during winter and part time during the warmer months -- thankfully, trailer storage can be cheap in this area).

Weight

I'm fairly happy with my current weight. I could end here. I still have some fat around my belly. I'd also like to see what 192 feels like. And I do worry if I end here, I'll adjust my diet and start gaining. So I'm at a bit of an impasse: introduce exercise or cut calories further. Exercise seems like the sensible and smart choice. So I think I'll keep my diet as is until I can change my daily life to include more exercise (and I see the numbers going down on the scale).

Side business

Way behind the place I'd like to be in terms of growth. This business still needs more of my time but it is going to be long slow slog to acquire customers and grow it. So far, I'm probably going to stay the course and keep going although I think many would consider pivoting or terminating in favor of something new. I do want to try some other startup ideas separate from it but I risk spreading myself too thin (already too thin to do anything with the contract work).

Housekeeping

I'm going to go to quarterly updates starting now.

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Re: SWB's path to financial independence

Post by SavingWithBabies » Wed Jul 11, 2018 2:53 pm

Surprise restructuring at the day job. Somehow, I was not one of the majority of engineering staff laid off. I kind of wish I was as the severance would have been nice. The company was not going in the right direction. Now they have switched directions quite a bit but engineering-wise, they are going in another (looks like wrong) direction but probably better direction overall. But I don't want to be on this ship. Giving it some time to see how it shakes out.

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