Generation-X' Journal

Where are you and where are you going?
Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Fri Oct 02, 2015 4:40 am

thrifty++ wrote:Inspiring that you have been taking such innovative steps to save money. I guess my question is how do you deal with late night bathroom requirements. Do you have a bladder the size of a basketball or is there something you do?

The restroom is close by within the building, so usually it's not an issue.

In very late night situations, I would first put on acceptable public attire in order to use the restroom because the premises has security cameras. In the summer, this usually means putting on shorts and wearing sandals so it's a fairly expedient process. (In fact, the sandals were purchased just for this purpose)

For those instances that involve waking up in the middle of the night, I am prepared with a bottle with a cap for containment and disposal but so far, haven't really need it.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Fri Oct 02, 2015 7:04 am

El Duderino wrote:Have you considered the opportunity cost of keeping that much cash on hand versus letting some of it grow and accepting a less than 100% savings rate? You can still track expenses to see when they would have summed up to 100K.

I like your no-nonsense chart and categories. Simple and effective. I also sympathize about the 'mirage of security' feeling. IMO, there is no such thing as 100% save and secure, just people who fool themselves into thinking that because they have X number of dollars stuffed in the walls of their house or X containers of rations and ammunition stored under their staircase that they can sleep better at night knowing that the bear/zombie/nuke-pocalypse is not going to hurt them. We all determine our own state of mind.
Thanks, and excellent point regarding opportunity cost. Hopefully by the time 100k savings is reached, bonds, equities and real estate would be cheap again so that risk can be taken with reasonable margin of safety. If it does happen, it will be one of those rare occasions where bonds, equities and real estate will be in play all at same time.

If that's not the case, then I am planning on using 100k savings to induce larger savings by using the provisions in retirement savings plan(s). By then, I should be able to sock away around $55,000 per year. In 5 years, this amounts to about $275,000 in pre-tax savings.

The end result will be:

*
About 600k in pre-tax savings, along with about 100k in after-tax savings, estimated very conservatively without pension OR;

*
About 400k in pre-tax savings, along with about 100k in after-tax savings, estimated conservatively with pension at about 40% of income at that time, with medical.

It is most likely that I will take the pension option.

I can not control what the market does, but I can control savings and expenditures and the projection is purely based on savings alone.

In either case, there isn't much downside, even just with savings. But opportunity to shorten time to retirement would certainly, certainly, be welcome.

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Gilberto de Piento
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Re: Generation-X' Journal

Post by Gilberto de Piento » Fri Oct 02, 2015 8:28 am

Hi Gen-X,

I admire how hard core you are but I'm confused about the motivations for your choices. You have a $425 / month car payment (according to an older post) and pay $350 / month to live in an office. Wouldn't it be better to have a cheap used car and live in a house or apartment with roommates? I don't understand how having an expensive car can be worth living in an office. Even if you still wanted to live in the office couldn't you save a lot more without a car payment?

Much credit to you for putting the E in ERE and thinking outside the box.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sat Oct 03, 2015 2:34 pm

Gilberto de Piento wrote:Hi Gen-X,

I admire how hard core you are but I'm confused about the motivations for your choices. You have a $425 / month car payment (according to an older post) and pay $350 / month to live in an office. Wouldn't it be better to have a cheap used car and live in a house or apartment with roommates? I don't understand how having an expensive car can be worth living in an office. Even if you still wanted to live in the office couldn't you save a lot more without a car payment?

Much credit to you for putting the E in ERE and thinking outside the box.
Thanks for the compliment. And lately, I've been thinking it would be even nicer to do away with rent altogether!

It's a lifestyle choice - a compromise, as with anything. Since I'm more out and about than staying at home, I cut in areas where perceived value was less.

It's an interesting question. Probably worth digging deeper into.

Generation-X
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Update Jan 2016

Post by Generation-X » Mon Jan 11, 2016 5:48 am

January 2016 Update:

Since starting on this adventure 3 years ago, I've managed to make reasonable progress in both pre-tax and after-tax cash positions.

Image

Strategically allocating nearly half of the net worth in pre-tax pension contribution turned out to be a blessing, as Fed's prolonged zero-interest rate policy lasted for far longer than expected. Interested earned, is barely enough to keep up with 4% yearly inflation, if you believe CPI. The other half are sitting in cash, mostly in pre-tax retirement plan.

it's too early to tell, but market appears to be posturing for a major correction, which normally takes several years.

Current short term plan is simple - keep socking away as much as possible for the next few years.

Good news is that now I can start formulating options for retirement, probably in few years.

Details will follow.

Image

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Wed Jan 13, 2016 4:13 am

Planning for retirement

Following is a projected net worth in end-of-year annual increments out to 10 years time, starting from January 2016.


Premises:

*30% savings rate on net income.

*Maximum pre-tax and after-tax retirement plan contributions each year.

*Only savings is considered. (No interest calculation)


CASE 1: Retirement with pension cash flow (which starts in year 5)

Image


CASE 2: Retirement without pension

Image


Retiring 1-4 years from now

* NO healthcare coverage
* Complete withdrawal of pension contributions and rolling over to pre-tax OR;
Retiring in 1-4 years while delaying to collect pension cash flow of 2500/mo. before tax, starting in 2020. in exchange for loss of half the net worth at the time of retirement.


Retiring in 5 years or later

* Health coverage (100% insurance premium, dental, vision) from the date of retirement until transition to Medicare at age 65. Reimbursement of Medicare premiums up to set annual limit after transition to Medicare.
* Pension cash flow for life.


Things to consider:

*Methods to counter inflation in retirement (preferably self-sustaining)

*Taxes (in investments, conversion ladder, geographical location)

*Property (rent vs. owning in retirement)

*Monthly spending cap in each of the cases

*Quality of life projected by monthly spending cap

*Preparing for old age - implementing ways of keeping independence from the inevitable, several decades from now

*Purpose and motivation for retirement - why retire?

*Bucket List

*Optimal point of retirement (pro vs. con, B/C, weighting, age and employment)

George the original one
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Re: Generation-X' Journal

Post by George the original one » Wed Jan 13, 2016 11:05 am

On the choice of pension vs. non-pension, I found it very helpful to compare the pension cashflow to an immediate annuity purchased with the cash value.

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Gilberto de Piento
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Re: Generation-X' Journal

Post by Gilberto de Piento » Wed Jan 13, 2016 11:20 am

You may also want to consider how likely it is that the pension will be reduced or eliminated altogether (though this is hard to predict).

George the original one
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Re: Generation-X' Journal

Post by George the original one » Wed Jan 13, 2016 11:47 am

Gilberto de Piento wrote:You may also want to consider how likely it is that the pension will be reduced or eliminated altogether (though this is hard to predict).
Definitely! 70% funded or less is grounds to be concerned. 80%-90% funded is likely okay assuming it is a government pension.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu Jan 14, 2016 5:41 am

As George and Gilbert point out, pension is a rather finicky beast to forecast. Pensions can be reduced in post retirement because it's money that's under someone else's control (which happens to be yours).

In trying to project a realistic outcome, only those premises that can be reliably influenced are being used for the forecast.

For example, I have no control over market performance nor can I predict it. Same goes for real estate.

Bonds and CDs are better but they can't match inflation currently, let alone surpass it. In case of bonds, it's ripe for implosion.

About the only things I have influence over are earnings and savings, which are under my control.

I revised the forecast to reflect true likely outcome while maintaining conservatism.

Image

Qualitatively speaking, if I were to retire in 1-2 years, things will be tight. Roughly $1600 per month for 25 years. With healthcare cost, it will leave about $1300/mo. to live on. Taxes would be minimal. Inflation would be a major concern.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 17, 2016 2:03 am

Construction Time Again

Since the start of the journey 3 years ago, applying the methods behind the idea of early retiremnet and observing the changes has been quite encouraging.

Just by saving more and spending less, I've been able to increase my networth by a third in just under 3 years. And I'm not hardcore ERE.

The method is quite effective, so long as there is consistent income. It can also be trying at times as well.

I've allowed outlets in transportation and miscellaneous spending so that transition could be at a reasonable pace and it has worked out well - things feel balanced.

I can predict reliably where I will be in time and how long it will take me to get there. It's all a matter of routine.

And as is the human nature, the million dollar question is, how can I improve this? How can this be done better, faster?

I've given this some thought, and conditions are now emerging to integrate a new component to strengthen the foundation - it's time to add self sustaining cashflow of my own.

The intent is, any savings achieved from this point on, will be used to build this cashflow.

The upcoming market correction will be utilized, however severe the correction may be. No leveraging will be utilized, whether it's buying on margin, mini futures, options or currency exchange.

The bias will be long.

Both Debt and Equity instrument will be used. Debt meaning, loaning out money for interst. Equity meaning, participating in a business and collecting shared profits with other owners (dividends).

Currently, half the networth is invested in debt instrument at 6% and it will remain there until a decision is made to cash it out. Rest will remain cash to provide liquidity and safety net.

All future savings, both taxed and deferred will be invested in equities as the market undergoes the correction - naturally, the intent is to buy close to the bottom as much as possible.

The companies to purchase have already been selected. If company does not have dividends, then that company will not be purchased.

The goal moving forward, will be to create a cashflow that will mirror at least half the cashflow provided by pension - idea being, this will cut down the time to retirement by half.

The process will continue even after retirement, into perpetuity.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 17, 2016 3:34 pm

Looking at Equity as a cash flow vehicle

Participating in equities requires monitoring. Many factors are not controllable.

Nowadays people don't invest but they gamble - they simply bet long or short on the entire market, sector or a company.

For the masses, they preach buy and hold index funds using flashy words like dollar cost averaging and passive asset allocation. What they don't tell you, is that it's been done before - whether one owns 20 bellwether stocks or 500, it doesn't matter. For bellwether concept to work, the value of the index, as average, must always move higher. Reality has a funny way of ensuring this does not happen.

What's probably the most important in looking at equities as an investment vehicle is the valuation - to know when to buy. Buy them when it's cheap. Don't buy them when it's expensive. Why pay $50,000 for a new Corolla when it can be had for $5,000? There are times to invest and for most mortals, this happens maybe once or twice in their life time.

Equally important, is what to buy.

-to be continued
Last edited by Generation-X on Sun Jan 31, 2016 3:17 am, edited 2 times in total.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 3:02 am

Problem in investing in stocks today is clarity. A proper analysis of the balance sheet on huge corporations often requires much knowledge and information - not practical for an individual investor. Relying on company such as Valueline is just as effective as relying on Moody's and S&P ratings. (not preferred)

Various methods, such as index funds, sector funds, value investing or playing the casino on futures or options are all based on a simple methodology of buy low, pray then sell high (whether one's long or short). Different ideas of valuation are really prayers to add conviction and confidence so that one can actually push the button to place the order. Repeatability is limited. Success depends on many uncontrollable variables and chance. It's essentially playing casino with the market.

How can one make the process of investing consistent and predictable? This is the crux of the problem. The answer, as it turns out, is fairly straight forward.

If one looks at the historical creation and evolution of stock exchanges by Andrew Beattie (http://www.investopedia.com/articles/07 ... istory.asp), at first the idea arose out of need by merchants to reduce risk by unloading them - i.e. they traded promissory notes (bonds) amongst each other and to public in exchange for some medium of value. As trades became global toward India, Asia and Africa, group of investors pooled money and funded each trade for its proceeds. At first, the group would dissolve after a successful trade and another would form. Then East India Companies began issuing stocks which provided proof of ownership in the company and entitled the owners with dividends - based on all proceeds received from all successful trades. This is what modern stock is based on.

-to be continued.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 5:21 am

A quick thought on negative interest rates -

Europe, Japan and even Canada are engaging in negative interest rate policy to prop up economies.

Both Bernanke and Yellen have stated that negative interest rate policy is an option to be considered.

This will probably cause rise in interest rates as banks will be reluctant to pass on the expense to the customers and instead raise rates to cover the expense, having an opposite effect than what the Fed desires.

On the other hand, eventually, as banks pass on the expense, then it will make sense to withdraw cash from banks as I have no intention of paying them to hold my cash. My mattress will do just fine. ( the look on the face of the teller when I ask for $100,000 in cash will be priceless. [ I have done this before, in 2008 for lesser amount. Three nice young ladies helped in counting the bills ] )

I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed bursting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
Last edited by Generation-X on Thu Feb 04, 2016 5:49 am, edited 1 time in total.

toto123
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Re: Generation-X' Journal

Post by toto123 » Sun Jan 31, 2016 11:19 am

Generation-X wrote:I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed busting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
At which point in time will you start getting into these positions? On the day when US interest rates cross zero? Or later? Will you wait for a price confirmation of real estate before purchasing US properties?

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Sun Jan 31, 2016 2:45 pm

toto123 wrote:
Generation-X wrote:I will borrow, borrow and borrow at fixed interest rate as soon as possible and buy a home as the housing market will bubble due to foreigners purchasing US properties with cheap money from outside while mortgage rates move higher in conjunction with housing prices, locking out American home buyers. And if rates truly go negative, banks will send me monthly checks for borrowing their money on top of that! (not likely)

Precious metals will rise and so will its ETF's because current safe haven is USD at near zero when everyone else is negative. If USD goes negative, then flight to precious metals will be inevitable.

Stock market will bubble and one will be forced to participate and ride the lies until the truth is revealed busting the bubble.

If 0% loan is a reality (not likely), I will load myself with debt as much as possible and hold until rates rise again. As a matter of fact, I will leverage the loans to sustain payments to each other (zero sum game). If negative loan is a reality, even better, I will load up on negative interest debt and retire.

At some point, all these built up bubbles will have to burst, globally.
At which point in time will you start getting into these positions? On the day when US interest rates cross zero? Or later? Will you wait for a price confirmation of real estate before purchasing US properties?
The post was meant to be sarcastic toward the Fed if anything and not toward those experiencing this already. ( I noticed that you're from Canada )

I think their rationale is something along the lines of forcing literally everyone in the world to pay up (tax) to revive the world economy. But we've already been experiencing negative interest rates for well over 8 years now at -3%, factoring in inflation in real terms.

IMO, there will be serious political consequences for politicians and certain person(s) in the Fed, if they try to implement this policy. It's one thing to not receive interest (perceived as even money) but to pay for having your money in the bank? No self-respecting American will tolerate that. I think at first, they'll start withdrawing and then, they'll start the political process of recalls and impeachment, eventually throwing out the policy makers in the Fed. It's already been done before here in California, when Gov. Davis was thrown out after CA electricity crisis - when people had to endure 2-300% increase in electricity rates due to government regulation. Americans are finicky that way - so implement away at your own peril.

If Yellen is a self-preserving woman, I think she will try to raise interest rates as much as she can before bringing it down again to save some bullets to be used later. This will probably be the better move to make, albeit for the wrong reasons.

Also, US economy, in my opinion, is not as weak as other world economies at present.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu Feb 04, 2016 6:38 am

Historically, there have been two ways to invest money (gambling is not investing fortunately):

Debt instrument generates cash flow by interest on money loaned out - so called bonds.
Equity instrument generates cash flow by running a venture with other investors and receiving share of the proceeds proportional to amount invested, called dividend on a stock.

It's interesting to note that interest on a bond is usually fixed - therefore generated cash flow is predictable and constant, so long as the borrower keeps on paying interest to the bearer of the bond. This is where story ends with bonds - stable and boring, but gets the job done. Larger cash flow requires a lot of money.

Dividends, on the other hand, can change depending on the proceeds. If there are many successful ventures, proceeds will be higher and so will the cash flow. In addition, the face value of the stock, which entitles the bearer with right to proceeds, will rise. It's like having a bond with interest that changes by rising dividends or rising face value of the stock or both. Therefore cash flow is not predictable nor constant.

But what if the direction of the cash flow can be guessed and with high likelihood?

-to be continued

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu Feb 11, 2016 4:56 am

It appears that market is slowly making up its mind and we are now approaching a critical juncture.

Global economy is in the pits - Europe, Japan, Russia, Brazil and now China is slowing. China's housing crisis have begun unfolding. US businesses have begun layoffs and closures. There is a looming world war in the middle east. Oil is tanking.

Well, nothing new really - same old stuff, just with different names and places.

Let's see if market moves up.

Generation-X
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Re: Generation-X' Journal

Post by Generation-X » Thu May 05, 2016 2:55 am

The market moved up.

Unfortunately, the apparent formation of double bottom on the Dow, signifying a rally, isn't materializing.

The beauty of all this, is that it does not really matter.

Accumulation of savings continues, and like a tigress lying in wait, she will act, when the opportunity presents itself - having prepared herself for that moment.

About half of net worth is earning 6% interest. The other half, lying in wait. In the mean time, I'm accumulating.

** On a side note, even if the market collapses, the process takes years and being able to see clearly through that process to call the bottom takes patience.

Even if opportunity never comes, the routine savings, not having debt and living below one's means will be more than enough - in fact, it's the foundation.

I think I'm getting it. May not be hardcore ERE, but better ERE-light than never. :)

Augustus
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Re: Generation-X' Journal

Post by Augustus » Fri May 06, 2016 12:17 am

So why stay in California? I fled 2 years ago. I'm near a college town out of state where you can rent an older, but entirely serviceable apartment for 400 a month. It's also biking distance to a business district. If you were so inclined you could rent one, and sublet a room and probably reduce rent to 100 or 200 per mo.

Also, did you sell the car? SoCal has an obsession with cars, I can't count the times I got made fun of for having a high income and driving a used late model civic. The financial ironies still boggle my mind, since i was more successful and had more assets, and was getting lectured by people with less about my poor decisions. My point is you can buy a used civic for 5k that will last another 10 years, why pay 4800 per year for several years to accomplish the same thing?

Very interesting journal, youre definitely more ballsy than I am.

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