What is your FIRE number? Your expected FIRE expenses?

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cmonkey
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by cmonkey »

jacob wrote:To go back to your example, it gets "complicated" when you start computing the cost of your appliance. If you hold it for 10 years and sell it again for $50, is the annual cost $10/year? That sounds reasonable ... but what if you could sell it for $200? Is your cost now a negative $5/year. Is that still a cost? If you're making money, are you in the appliance business?

I hadn't even taken it that far, although I have for other things - my car notably. I bought it for 5K back in 2005 and can probably sell it for ~1K now, implying an annual cost of $364 bucks.

Its easy to see how this can get complicated/difficult to compare.

This kind of accounting seems most useful once you have achieved sufficient wealth and can think more in years as opposed to months ahead.

Another example- the muffler fell off our truck this week and we had it fixed for an efficiency factor of 2X (used after market muffler, custom tailpipe).



I think this is one of the more fascinating threads to come around in a while, thanks for all of your thoughts folks.

jacob
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by jacob »

@JL13 - The RV itself was a $10000 loss (depreciated over 3 years). However, that only happened because we had to sell in a hurry because I got the quant job offer. That job covered the loss within 2 months. W/o the job offer, we would have kept it much longer, so while I took a hit (capital loss?) ... it wasn't really depreciating that fast in the "being used up sense".

Our first car depreciated at about $1000/year. This was mostly because it was bought new. (The old one broke down in the middle of nowhere on a Saturday; we had to bring a dog home; no rentals around in Podunk; and I had flight booked 3 days later; so kinda knee jerk.) We're still on number two which was bought used for much less.

Conversely, the house seems to have been quite profitable.

Everything else I try to maintain on a revolving net neutral basis. The value of my stuff is around $3000 (most of it being a new computer to replace the old one from 2004 and a scroll saw). It's a fairly trivial amount. Long run depreciation cost is maybe $100-200/year speaking very pessimistically---I mostly blame the computer here. It could be slightly positive. I'm not keeping records.

Just to put things in perspective, the only things I've bought YTD has been two pliers (used) and a set of four router bits (new), about $40 in total. In the same time. I've sold some of my books, maybe a couple of hundreds worth of income.

That's about the amount of money I receive in dividends in under a week, so the cost of stuff is in the nitpicking category for my situation.

So comparably speaking, these costs are rather small compared to all other costs. If you want to add them in, maybe I spend 6k instead of 5k. In any case, I think 7k is "close enough for government work".

JL13
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by JL13 »

@JP,

I don't really know what you'd call the results:

Side hustle + investment income = big spender
DIY + social capital = tightwad
side hustle + social capital = socialite
DIY + Investment income = hermit

??

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jennypenny
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by jennypenny »

@JL--I was looking at it more like ...

low start-up + lower operating = quickest route to ERE, heavy on DIY and social capital, better have the skills/network or learn quickly
low start-up + higher operating = quicker route to ERE, some DIY/SC, heavy side hustles must be developed first
high start-up + lower operating = slower route to ERE, have to save up first, some investment income, with others mixed in
high start-up + higher operating = slowest route to ERE, likely heavy on investments/side hustles (harder to DIY away a high-ticket lifestyle)


That's why I thought it was better to separate start-up and operating costs. There are obviously a myriad of ways to combine the 4 types of capital to suit a person's situation, skill-set, and temperament, which would also affect how quickly a person was able to pull the plug.

@Zalo separated the two numbers out in his thread title. I think that's the right approach.

sorry--I didn't mean to derail the discussion about imputed rents and such. I'll bow out.

Scott 2
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by Scott 2 »

I see income, expenses, appreciation, depreciation as pretty clear things to track. Each impacts net worth at the end of the reporting period.

Non-cash value derived from held physical assets is a tough one to account for. For comparison of expenses, I'd still lean towards recognizing imputed rent in the expenses side, with a matching entry on the income side. So it nets to zero, but the acknowledgment is there. The reason is if I choose to play with alternate living plans, I want a line item to tweak. The big items have a big impact on my lifestyle, so I want them modeled somewhere.

I simplify my bookkeeping by ignoring the tiny stuff. I bought a pressure cooker for 150, sold for 100 after a few years. I have no financial history of it. Ego's gym classes would appear as a single line item in my budget, probably as a small positive value due to the teaching. It's not big enough to move the needle, so good enough. I'd ignore the benefits of a bread machine for the same reason.

When planning a purchase of typical material goods, I do base it on my expected lifetime cost. I'd never bother to resell pliers, so I'd view their value as zero upon purchase. I'd also purchase the cheapest workable pair as as result. Honestly, I'm at that point for most material goods these days. The internet makes most things so cheap, the price is just noise in my typical income and expenses. I do have rare instances where I'll happily purchase "uncharacteristic" luxuries with the expectation of selling down the road. Lately though, on the way out I find myself regretting the time cost of selling.

JL13
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by JL13 »

@JP

on the contrary, i think imputed rent is very on-topic here. This thread got me looking back at MMM's spending last year. Per person it was about $8,000, and the house was ~$300,000, or $100,000 per person. Using 3% SWR on the $8k gives us $266,000.

So is MMM "FIRE number" $266k or $366k? I don't think the difference is trivial.

I think you've got a great point though about separating operating cash flow versus the "buy-in".

Riggerjack
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by Riggerjack »

Well, I never really got a firm budget down. So much spending is so infrequent, yet still worth spending. For instance, mattresses. Would you have a line item for bedding, with replacement costs broken out by expected lifetime?
My method is to simply have a regular spending amount, and a bit of headroom on that. I am certain that it being there increases my spending, overall, yet not stressing over money has a very high value to me.
My number would be:
A pension of approximately 18k/year
My 401k at about 350k
A paid off rental house grossing 24k rent
A paid off house to live in.

All that to pay for expenses of aprox 24-30k(2016 dollars). Which falls in the category of ridiculously conservative.

But my retirement plan is to start a capital intensive business, and since I can't replace my current job, I need to ensure that all is well should the business tank. Additionally, that pension drops by about 60% if I leave a day early. All the other numbers are just a natural extension of working at my present saving rate until that early retirement date.

My long, long term goal is even more capital intensive than the business, so it's not like the extra is waste. Either the business takes off, and I then move into building the ultimate retirement compound, or it fails, and I build the reduced retirement compound. The difference is the width of the moat, the size of the drawbridge, and the extent of the gardens.

Clearly, retiring to an apartment would be easier...

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jennypenny
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by jennypenny »

@JL--I wasn’t arguing that imputed rent wasn’t on topic. I think it is important to judge the imputed value, but only as it pertains to the individual and how they value the item. The person should evaluate the item based on their situation and personality and not just the arbitrary financial value. Separating the buy-in costs from ongoing costs helps the person judge whether owning the item/self-sufficiency or retiring sooner/freedom from stuff brings them more peace of mind.

Sorry -- I know I get hung up on this issue, but it's because I think it's ultimately not about the money. I know many people think it IS ultimately about the money though, which is why I was backing out of the conversation.

7Wannabe5
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by 7Wannabe5 »

Jacob said: ???: 2-5k
Limbo!!!

@JL13: I guess I am a tightwad socialite.

I think there is another spectrum that could be applied to frugality which would be something like Conservative-Creative. This has to do with how you process desire. The conservative frugal type would tend towards avoiding the expense of fulfilling the desire by squashing the desire. The creative frugal type would tend towards choosing to fulfill the desire by substituting the most creativity and the least money possible. When you are really in the frugal groove then you will be engaging in something that is in between and above both the conservative and creative approach where you are deconstructing your desire into its component parts and then choosing to squash or fulfill each part through a variety of methods. Since fulfillment of personal desire is pretty much synonymous with quality of life, I think this is how anybody could achieve their own highest quality-of-life/expense ratio. IMO, the primary reason why most of the people on this forum are able to achieve very high personal quality-of-life/expense ratios, is due to something like possession of a high level of intellectual/cultural capital which allows us to perceive value where many other people can only perceive price.

jacob
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by jacob »

I think we need four numbers then. These can be summed to a standard of living.

Home(+Tools) + Cash expenses + Skills = Standard of Living

Our case: 92000 + 10000/0.03 + X = 40000/0.03 or 92000 + 425333 + X = 1333333, so apparently our ERE skills are worth 908000.

This will reveal any buy-in in terms of bricks or tools + required investments at the 3% rule + any value added skills to reach a certain lifestyle.

My case in 2001: 0 + 6000/0.03 + 0 = 6000/3, where I lived out of a suitcase in a dorm room and had no frugal skills.

Or we can use them in the form of flows instead by multiplying the whole line by 0.03 ... then

92000*0.03 + 10000 + X = 40000 or 2760 + 10000 + X = 40000, so my ERE skills generate a boost worth $27240 of "standard of living" each year.

I'm not more skilled now than a couple of years ago, so compare to apartment living where it could be argued that our SoL was the same (similar clothes, food, etc.) even if details like home-size shape and utility and insurance costs changes ...

0 + 14000/0.03 + 27240/0.03 = 1374666 ... so very close to the same number.

(This is not accidental. The price limit on our house was very much set by expected costs compared to apartment costs. I mainly wanted to reduce my stock market exposure w/o increasing my costs.)

Of course the "standard of living" factor is not as clear cut as the first two. By implication, the X-factor is not as clear either. But at least it should be possible to compare a wider range of lifestyles by both compensating for "standard of living" and the ability to make each dollar go further.

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Re: What is your FIRE number? Your expected FIRE expenses?

Post by jacob »

Potato land example: (potato costs only)

Joe Consumer: 0 + 12/0.03 + 0 = 12/0.03 ... presuming Joe eats $12 worth of potatoes each year.
(In these days of frozen pizza and fast food that might even be realistic.)

Joe Save'n'Shopper (who gets 50% off on his potatoes): 0 + 6/0.03 + 6/0.03 = 12/0.03 ... JoeSnS has potato skills worth $200 or the $6/year he saves ... he still eats the same number of potatoes.

Joe Farmer (who grows his own): $150(??) + 0 + $50(?) = $200 ... again.

Other examples are possible where the amount of potatoes is higher or lower than the $12 on the right hand side.

George the original one
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by George the original one »

Some real world potato numbers from my experience:
Joe Save'n'Shopper buys 10 lb bags of potatoes at $3 every two weeks (family of 2), so 260 lbs of potatoes for year cost $78.

Joe Farmer buys 50 lbs of certified seed potatoes and expects 5 lbs for every pound planted. $25 shipping cost and $15 for the potatoes = $40 for $250 lbs.

IlliniDave
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by IlliniDave »

7wb5,

Interesting thought.

There's another axis to that space: industriousness. Sometimes hard work will get you where you want to be without money. At times it and creativity could overlap, of course. I don't necessarily agree that fulfillment of personal desire and quality of life are synonymous. Both delayed gratification and even strategic sacrifice can add much to the quality of life. That's most commonplace when there are conflicts in desires, which seems inherent to human nature.

I agree with your final thought, but would add that it seems also to be the ability to see beyond the immediate cost to the full price across a palette of goals over time. Maybe said more simply as just the ability to see the interconnectedness of things in a multidimensional hierarchy, or more simply yet: the bigger picture. An example that although true sounds almost hyperbolic, but my DX used to go through the drive through ATM at the bank and check the balance on the checking account and feel free to spend up to the reported balance. This was in the days before internet banking, debit cards, and automatic/electronic bill paying. She had no intuitive grasp of the reality that there were checks out there already written that had yet to clear and bills that would come due soon. It was a bit of information taken in isolation and (mis)used, frequently leading to unpleasant consequences, because to her each spending instance was an independent event unrelated to anything else. I see analogous thought processes in other people I know that struggle getting out ahead of their finances.

7Wannabe5
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by 7Wannabe5 »

@IlliniDave: I don't think we are really in disagreement. Instead of quality of life, consider quality of dinner. My personal desires, perhaps in some conflict, I wish to fulfill in the realm of my dinner are "delicious" and "nutritious." I have some potatoes and chard from my garden, and I only want to spend $1 at the Dollar Tree on any other ingredients. Do I sacrifice fulfilling my desire for "nutritious" in order to not spend more than $1. Do I sacrifice fulfilling my desire for "delicious" in order to not spend more than $1? Or do I come up with a creative solution that will adequately fulfill both desires at that cost? Industriousness might be part of my creative solution. For instance, I might choose to take a hike to scavenge some mulberries as part of my solution, but the choice to be industrious is necessarily subsidiary to the process of being creative.

In the example concerning acquisition of potatoes that Jacob offered, the market-basket standard of living of $12 potatoes purchased at typical cost is used to calculate value of the frugal skills of bargain shopping and gardening, but a measure of Quality of Life as opposed to Standard of Living would also take into account whether or not Farmer Joe has the Intellectual/Cultural Capital necessary to determine what would be the most nutritious and delicious variety of potato he might plant. In simpler terms, Farmer Joe's knowledge base and level of discrimination along with his personal taste/druthers when applied along with the skill of gardening will serve to improve his Quality of Life to an even greater extent than his skill will reduce the cost of his Standard of Living.

Another example might be that if I go to the library and check out a copy of "Tristram Shandy" to read in a shady spot while eating a salad of garden fresh arugula, feta and heirloom apples, my Quality of Life is immensely higher than somebody who pays full price for a Danielle Steel novel, while stranded in an airport munching on a stale bagel. There is no amount of industry or money that will improve the Quality of Life of somebody who does not have the ability to recognize that a work by Sterne is of much greater value than a work by Steel, or that a fresh salad is a better meal than a stale bagel. Many items of great value are available for a very low price, because the mass market prefers the mediocre. Another example might be the advice offered on this forum vs. the advice offered in some terrible financial planning seminar.

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Ego
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by Ego »

jacob wrote:I think we need four numbers then. These can be summed to a standard of living.

Home(+Tools) + Cash expenses + Skills = Standard of Living
http://earlyretirementextreme.com/stand ... -life.html

Consider that the the happiest person ever measured by fMRI lives in close proximity with many others, literally begs for his sustenance and owns nothing but the clothing on his back. There must be a lesson there.

Do skills trump all? Should we be striving for a FIRE number of zero?

BRUTE
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by BRUTE »

what about the ability/tendency to give up on desires? what's so great about a high standard of living? isn't it much more efficient to just not desire one?

Fish
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by Fish »

jacob wrote:Home(+Tools) + Cash expenses + Skills = Standard of Living
I like how this captures the main financial angles of looking at a lifestyle: how capital-intensive it is, the required cash flow, and the skill level demonstrated. The ratio (Skills/Standard of Living) tells us what proportion of the person's material needs are met through skill. This is very relevant from an ERE perspective, and arguably more useful than the popular financial metrics because it works regardless of the person's absolute consumption level and how many years of expenses they have saved.
Ego wrote:Do skills trump all? Should we be striving for a FIRE number of zero?
It's up to each individual to decide what their material needs are. The typical E-ER narrative of "less is better" makes sense when using our wasteful consumer culture as the baseline, but it can be taken too far, especially if people intentionally deprive themselves of things they want only because there is a synergy with lower absolute expenses enabling even earlier retirement. If one is ERE-minded, the ultimate goal is not to have very low needs (Level 1), but to meet needs and wants using the full web-of-goals approach (Level 3).
Last edited by Fish on Fri Jul 01, 2016 2:24 am, edited 1 time in total.

Did
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by Did »

@jennypenny I invested some start up costs in my brewery and brewery books, but by jeeze we are recovering our investment by the day. I think our first batch of wine paid for the wine making kit (1.10 a bottle instead of 4 euro, and that's not including country wine efforts). Other examples for me, the house in Ireland (A$100k in, but zero rent vs 500-1000 euro a month here). Our property tax is 90 euro a year, water 120 euro a year. And cookbooks were also an investment that resulted in everything being made from scratch. I guess buying a housesitting website membership for US$100 was an investment that has improved our lifestyle by many, many thousands.

I am a huge fan of Jacob's efficiency observations. Getting the same outcome for less money just makes sense. You can't argue with it. There is no downside. And yet it isn't something most people think about: being inefficient is seen as a sign of success even if you are paying for the inefficiency using a high income you get at work because you are so good at being efficient there.

FBeyer
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by FBeyer »

Ego wrote:...Do skills trump all? Should we be striving for a FIRE number of zero?
Well, in terms of financial resilience/independence there is nothing more robust than that.
You cannot take anything away from such a person.

IlliniDave
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Re: What is your FIRE number? Your expected FIRE expenses?

Post by IlliniDave »

7Wannabe5 wrote:@IlliniDave: I don't think we are really in disagreement.
I agree we're not in complete disagreement, just maybe a difference in scope/context. Riffing on your meal example, stuck in the same situation, to approaches come to mind: adding to the food supply for $1 or less, or adding to the money supply so that more than $1 is available. So I might come up with options of either digging some worms out of my garden, taking a fishing pole, and walking 2 miles to the river to get some protein to augment the meal, or calling the local temp agency to get a half-day job standing out in front of the mall collecting signatures for a petition for $30 to increase my budget. Creativity has generated ideas but it ends there. To get the food in my belly via either of those ideas takes work. So unless we take the exaggerated position that every act guided by a human mind is a primarily creative act because it followed a thought/idea, we're left with creativity often being empty in isolation. The 1% inspiration 99% perspiration principle.

One can go back a step further and say what if 29 years ago I decided I didn't want to find myself 29 years later with nothing but a potato and some leaves and $1 in my pocket and hungry. Then maybe I would set things in motion decades in advance to change the constraints future me would contend with. To me it's looking at the stream of life as a connected whole rather than a series of isolated vignettes. I don't know that one way is better than the other, and in truth I suspect the optimum is a both/and rather than an either/or.

The last thing I'll add is that I don't think there is a universal itinerary for "Quality of Life". A not so generous person could look at someone and judge him as wasting a day eating rabbit food and reading a dull intellectual book under a tree while she basks in the rush of achievement as one-by-one she grinds through the stages of her journey to fulfillment, even if she happens to be caught temporarily in suboptimal conditions waiting in an airport.

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