John Galt's Introduction and Journal

[C-Dawg]

I've been reading the website and forum for a month or so and am excited to starting down the ERE path.
I'm 26 with an excellent income - but have fallen into the consumerist lifestyle of buying too much house for my needs, eating out nearly every meal, spending too much on a car, and generally just buying a bunch of crap that doesn't really make me happy and using my 50-60 hour work week to justify paying other people to do things I could do for my self.
Other than the house and the car (which will be paid off soon) I have no debt. Though I do push nearly all of my expenses through credit cards that get paid off every month to get either airline miles or 1% cash back.
I've started using mint.com to track it all and have cleaned up the last 6 months of expenses. I'll post the averages for the last 6 months and hopefully keep up with posting my expenses every month going forward as a motivation to improve.
Part of where I'm going to struggle for a while is with the house. I bought a fixer upper that has turned into a much more time consuming and expensive investment than I thought it would be. I've already sunk enough time and money into it that I feel like I should see it through before selling to recoup as much as possible (and hopefully even make a bit of a profit). Unfortunately, this probably means staying in the house for another 16 months to finish the renovations and keep the new home buyers tax credit. Though I am going to take a hard look at the math on this and see if it makes more sense to get out sooner as I could have renovations done long before that with a concentrated effort.
Here are the averages for the last 6 months (will be missing some cash transactions and, though I've attempted to filter them all out may include some business expenses that would have been reimbursed).
Income

Net Paycheck (after taxes/401k/etc):$6144

-This will be going up as I decreased my 401k contribution to just get me the company match

Invest ROI: all investments at this point are in retirement accounts (401k/IRA) so I have not tracked them as income.

Poker: -200 (usually this is positive and have considered it a part time job since I lived off it for a semester in college)
Total: 5944
Retirement Account Contributions: 1469 (includes employer match on 401k)
Expenses

Home $2,303

Car $1,412

Food $650

Shopping $450

Pets $160

Travel $86

Personal Care $53

Other $53

Entertainment $50
Total: 5217
Home breaks down into 1500 for mortgage/insurance/taxes/extra towards principal I baked into my monthly payment, 231 for electric/utilities, 189 for lawn service (big yard), 241 for improvements (big expenses all happened prior to 6 months ago), 142 cable/internet.

-I've already canceled the cable portion of cable/internet and will be taking over the lawn duties myself. Hopefully I can find some ways to cut down on electric/utilities - part of the high cost was air conditioning and attempting to keep the grass alive through the hottest Texas summer in decades.

Car costs look high - but this is due to a strong effort to pay it off by January - which should be on track. Also includes maintenance/repairs, insurance, and gas.
Food = 487 restaurants (I eat out way too much and pay for the girlfriend when she's with me) and 163 grocery
Shopping will include clothes and a few gifts - but I'm sure is mostly made up of impulse buys
Pet - at the beginning of the 6 month period I rescued a puppy who needed to be neutered and have some health stuff taken care of along with buying a dog door, lease, etc. Without those one time costs - it's more like 45 on average.
I'm sure there's plenty to clean up in the other categories - but it's hard to focus on the smaller stuff when big things like housing and food expenses have so much room for improvement.
Savings Rate: 11.8% w/out 401k, 35.7% w/ 401k
-Is it correct to calculate this against net income rather than gross? Should I include 401k and employer match?
the w/ 401k vs w/out 401k difference will shrink dramatically going forward as contribution % is dropped to minimum for full match.
Goals:
Continue paying extra towards car have paid off in January

Begin to map out exit strategy for house

Cut back on food costs by eating out much less often

No impulse shopping

Get retirement accounts in order

-roll over 401k from previous employer to IRA

-reevaluate portfolio across all acounts

Begin investing savings in taxable accounts (not sure if I should continue to max out IRA or if it should be roth or traditional if I do)

Research dividend paying individual stocks

-what should I look into within 401k? Options are very limited
Feedback/Advice/Comments are very welcome - just please be civil when you go after my expenses

[m741]

I use net income and ignore 401k and employer match. When I talk about savings pct, I want to talk about how much I save from what hits my bank account. Part of this is because of how I treat my 401k - as a safety/old-age measure that isn't part of "early retirement."
However it would also make sense to include 401k contributions in your income.
As for reducing expenses it looks like you have the right idea. Restaurants, cable and lawn service would be my first targets, and you've already cancelled cable. If you live in Texas, just don't water your lawn. It's an ecological drain as well as a waste of money. No water=grass grows slower=no lawn service necessary.
Finally I would consider discussing finances with your girlfriend. If you're always paying when you eat out, and she's the one who wants to go to restaurants all the time, that doesn't really seem fair to me. If you're the one who always wants to go to restaurants, maybe she'd be on-board with doing some cooking together at home. Personally I'd say that's more romantic than a restaurant.

[sky]

What kind of housing options do you have near where you work?
It sounds like you are working on the top two expenses, housing and car. That is where the big savings comes in.
You might want to talk about cooking at home as a new hobby. Don't say you are doing it to save money, but that you want to learn to be a good cook. Perception is important.

[C-Dawg]

@m741 - I've discussed finances with the GF and she's on board. That said - eating out is usually my suggestion as it's just the habit I've gotten myself into. My attitude towards money since college has always been to just make sure I spend less than my take home pay - but as long as I'm doing that, spending on convenience (eating out, lawn service, etc) is just fine. Since I make considerably more money than the girlfriend and eating out was a lifestyle choice for me - I typically paid for it. So, I think the important thing for me is to change my lifestyle and thought process rather than get her to help pay.
@sky - I'm stuck in my current house until it's ready to be sold - and even if that happens in the next few months, I'll have to weigh it against having to repay the new home buyers tax credit I took if I sell before May 2013. I like the idea of learning to cook, it's just a matter of me getting out of that spending on convenience mentality. I really am a good example of the specialization issue Jacob points out. I work 50-70 hours a week and struggle to find the time/energy to do things for myself, but I'm working on it.

[C-Dawg]

November 2011:
Expenses
Car

Auto Payment $1,387

Gas & Fuel $59

Service & Parts $500
Food

Groceries $218

Restaurants $248
House

Home Improvement $100

Home Services $322

Lawn & Garden $152

Principal/Interest/Insurance/Taxes $1,500

Internet/Cable $142

Utilities $114
Other

Pets $62

Shopping $85

Misc. $27

Entertainment $62
Total Expenses $4,977
Net Income = 6312
Savings = $1335

Savings Rate = 21%
This was an in-between month for me as I just started trying to work in ERE philosophies in the second half of the month.
The auto payment continues to reflect significant extra payments in order to get it paid off by the end of January.

The $500 service is my deductible on an insurance claim due to someone borrowing the car bottoming out going too fast over a large road bump and ruining the transmission in the process. I must admit that, though it will be nice to drop my insurance premium to the liability only rate, I have definitely gotten my fair share out of having full coverage...

Fuel costs were considerably lower this month than my previous average due to the car being in the shop for a week and me traveling for work for another week.
There's still plenty of room for improvement but food expenses were about $200 less than my average for the previous 6 months so I'm trending in the right direction.
Home services was the last installment of paying for termite services (seeing a mound pop up on your dining room windowsill is not a pleasant experience). Lawn/Garden and Internet/Cable will be much lower going forward (no more lawn services and no more cable).
So my savings rate was not great this month - but I feel like I'm making improvements and the rate will increase quite a bit once I've finished paying off the car and start socking that away (would have doubled the rate for this month).
-The more I look at expenses for the house, the more torn I am over what to do with it. Of the Mortgage/Insurance/Taxes line, somewhere around 400 goes towards principal. The other 1100 is sunk costs (though I think my escrow may be a little high so there could be some more coming back). The home services are also sunk costs. The improvements theoretically I get back when I sell it, but there's no guarantee. To date, they probably total $16,000 - $18,000 and probably need to be another $5,000 before I can put it on the market and expect to recoup (none of that accounts for the physical labor I've personally put into it). At the rate I'm working on things now, I could probably have it on the market by April. If I keep the house till May 2013, I don't have to pay back the $8,000 new home buyers tax credit I took, but I'm beginning to think I'm better off paying it back than keeping it another 17 months.

-I could look to rent a room to help out, but I tried that about a year ago with unpleasant results so I'm hesitant to try again.

[George the original one]

Have a little patience. Unless you're truly striving to be ERE in 5-7 years, don't rush to sell the house. Once your car is paid off, you'll have over a 40% savings rate and that's okay while you're prepping the home to avoid an $8k bill.
In my opinion, the only consideration for rushing the sale would be exhaustion from your own efforts. That might not be worth $8k, but you're young, so I suspect it is. Also consider whether the hourly rate for poker is high enough to offset the time away from working on the house (BTDT!).
> Is it correct to calculate [savings rate] against net

> income rather than gross?
Absolutely! Everybody has a different tax situation and it's very hard to reduce taxes while you're an employee, so it's all about what you can save out of what is possible to save.
> Should I include 401k and employer match?
I would include the 401k contribution, but not the employer match. In casual conversation, I don't include it (like m741), but in the final reckoning, it is money that is banked and definitely counts towards the "enough to satisfy needs for life".
> Begin investing savings in taxable accounts (not sure

> if I should continue to max out IRA or if it should

> be roth or traditional if I do)
Contribute to your 401k up to the employer match limits. If that means you're maxed out, then so be it.
I think you probably make too much money to get the deduction for a traditional IRA, so Roth is your logical option (double-check this... being a gov't employee, I've got a slightly warped sense of the 1040 form). Roth is definitely more flexible in the long term, but if you can reduce your tax bill via a traditional IRA, then take it and plan on Roth-er-izing when you've achieved ERE.

[Mo]

Could you sell your current car and downgrade to a less expensive option? I understand that the payments are high in order to pay it off, so I don't really know what type of car you are driving, but you said in the OP that you spent too much on a car. This might free up some cash and give you a reduced insurance bill.
I wouldn't stop watering the lawn entirely. It's hard to sell a house with a dead lawn. Replacing a dead lawn with sod is very costly.

[C-Dawg]

@George - Thanks for the advice. I know I need to be patient - it's just difficult to stomach the idea of a year and a half of housing costs that are about what I'd like to get my total expenses down to.
@Mo - I'm looking into downgrading the car already, but it hasn't held it's value real well (trade in value is less than $10k, selling it myself would probably just get a few thousand on top of that) so it wouldn't net me a whole lot. However it is expensive to get repaired and gas mileage is not great so I may go ahead and do it from that perspective alone. I'd love to go the no car route - but that's probably not an option as long as I'm in Dallas.

I'm definitely going to keep the yard alive, I just won't try to keep it so green until it's actually on the market.

[C-Dawg]

December 2011:
Expenses
Car

Auto Payment $4,054

Gas & Fuel $134

Insurance $219
Food

Groceries $214

Restaurants $117
House

Home Services $27

Lawn & Garden $38

Principal/Interest/Insurance/Taxes $1,500

Internet/Cable $ 52

Utilities $112
Other

Pets $64

Shopping $361

Misc. $27

Entertainment $ 92
Total Expenses $ 7,108
Net Income = $6,363
Savings = -$745

Savings Rate = -11%
My negative savings rate this month is not really acurate as I put $4,000 to finish of my auto loan note so that 2012 could start "clean" on that front. Since I don't consider the car an investment, I don't count it as savings, but next month this money will be available as savings and would make for a 51% savings rate.
Gas expenses need to be looked into - though I'm not sure I'll be able to do much about them until I'm ready to sell the house and move somewhere that will let me be less car dependent. Auto insurance is normally half this, but the November payment registered in December rather than last month.
I'm pleased with my decreases in food costs - though I'll admit that some of this was due to a plethora of holiday family dinners so I'll need to work to keep it down, but I have cut back on eating out quite a bit from my $487/mo pre ERE mindset average.
Housing costs will continue to be high - though I may have a potential roommate situation that would help offset and even if that person does not come through, I may reconsider posting ads to rent to a stranger.

Even though I cut off my cable, my internet bill still seems too high so I'll explore other providers.
Shopping covers gifts for the holidays - most of which was taken up by a pair of expensive concert tickets for the girlfriend and I.
Entertainment was mostly New Years Eve celebrations downtown and a couple of movies.

[C-Dawg]

January 2012:
Well - it's a new year and the first month where I feel like I have a decent report on my progress and savings rate since the car is paid off. So - I thought I'd change my accounting up a little bit to start everything off fresh for the new year and new life style to go with it. Namely, I'll now be including 401k contributions/match as part of both income and savings and equity portion of my house payment as part of savings rather than expenses (since I now plan on either renting the house or using the proceeds from a sale to reinvest in other rental property next year I view it as an investment).
Transportation

Auto Payment $0

Gas/Tolls $260

Service & Parts $0

Insurance $110

Food

Groceries $152

Restaurants $298

House

Home Improvement $0

Home Services $27

Lawn & Garden $0

Interest/Insurance/Taxes $1,108

Internet/Cable $12

Utilities $72

Other

Health $126

Cell Phone $0

Pets $30

Shopping/Gifts $275

Misc. $62

Entertainment $198
Income

Paycheck $6,706

401K $383

Match $383

Interest $5

Other $0
INCOME $7,478

SPEND $2,729

SAVE 64%
There's definitely still room for improvement - namely I ate out and drove too much - also helped out the GF with some stuff she needed (shopping/gift) and had some medical expenses. I'd like to get the savings rate up to 70% and may have someone lined up to rent a room in my house that would give me a nice boost. I'm also refinancing my mortgage to drop PMI and get a lower rate so that portion will be going down. Both of these developments have me feeling much better about staying in the house through May 2013 to keep the tax credit.
I've done a ton of introspection/reading/research over the last couple months into options for getting out of my current long hours, high stress (though at least correspondingly high paying) career and have a few ideas taking shape.
1. I don't think full ERE is the route for me. I just don't see myself not working at all anytime in the next 15-20 years, I just want more control over what/how often I work and would ultimately like to have my own small business going that I could, ideally, ramp up or down to cover some portion of expenses that are not covered by fully passive investments.

2. Though not 100% sure, I am fairly confident that I could cover my current living expenses as a consultant working 25-35% of the time (most likely on month long projects 3 or 4 months out of the year) most of which could probably be done for my current employer.

3. Real estate investing (mainly owning and managing rental properties) has really caught my interest.

Taking these 3 realizations together has me working with a tentative plan to spend the next 2-3 years continuing to work full time while picking up a few rental properties and then transitioning into a part time consultant / part time rental property investor/manager so I can live off the consulting income and reinvest the rental cash flow either into more property or aggressive principal paydown.

[Marlene]

Hi John!

I´d be very curious about how that plan is going - it seems you will be having two pillars where your life will be resting on financially: consultant work and landlord. I´m curious because I wonder if they can complete each other or stand in the way of each other. I wonder because I´ve in a situation where I have two things that I would really like to to (Feldenkrais and Art) and wonder if they are in the way of each other and would appreciate hearing from others.

[44deagle]

Good job John, keep it up!

[C-Dawg]

Hi Marlene,
Thanks for bumping the post - I probably would have just left the journal be had you not reminded me of it. So far as your question goes... I'm not sure I have any insight at this point. I'm still several years away from making anything happen with independent consulting and am questioning my desire to be a landlord (see below). I don't see consulting and land-lording really interacting much at all except for competing for my time.
Here are my averages so far for 2012:
Transportation

Auto Payment $666

Gas/Tolls $276

Service & Parts $435

Insurance $110

Food

Groceries $180

Restaurants $249

House

Home Improvement $218

Home Services $96

Lawn & Garden $65

Interest/Insurance/Taxes $1489

Internet/Cable $48

Utilities $112

Other

Health $83

Cell Phone $150

Pets $36

Shopping/Gifts $198

Misc. $52

Entertainment: $157

Vacation: 355

Charity: 17
Income

Paycheck $7663

401K $1100

Match $428

Interest $6

Other $-17
INCOME $9,179

SPEND $4,327

SAVE 53%
So my savings rate has not been great over that period... but it does include a few major things that have improved the last few months. The biggest was my car - it seems that as soon as I paid it off, things started going wrong with it, expensive things. So, I traded it plus some cash for a 4 year old toyota matrix. It will be more reliable, better on gas, cheaper on repairs and should hold it's value fairly well for the year or two I plan on having it. That's $1,100 / month of the above expenses that should drop down to more like $50 / month.
The House Interest/Insurance/Taxes also reflects my refinance charges - but drops that portion down to $1,006 / month.
The monthly cell phone figure is high - but that's because I paid my parent's for 18 months of data+voice - so it's really more like $50/mo
So, taking that $1500/mo out, would have put me back to a 69% savings rate.
Income was also higher during the first half of the year than it will be in the second due to tax refund and bonus.
Other updates... I did end up renting out a room - but that poor experience is reflected in the negative number in "other income". Basically - I received 2 months of rent checks, listened to 1 month of excuses, went through 1 month to evict, and spent the 2 months of rental income to repair damages. This has kind of put me off of thinking about landlording for the time being. That said, I did rent out the room again, but to a long-time friend this time rather than a stranger.
I'm now less than 1 year away from moving out of the house (still questioning whether to sell or to lease out - refinance breakeven point was right at my goal move out date, so I'll at least break even on it or come out ahead if I stay longer or lease it out). Having a friend living there should go a long way - both financially and mentally - towards making me okay with spending another year here. Though - I am starting on the second round of spending money on the house for improvements to have it ready. The big project is the kitchen as I replace the appliances and counter-tops and refinish the cabinets. Total remaining budget for everything in the house is $10,000. This will put me at $180k total invested (excluding interest/insurance/taxes/services that I figure are mostly washed out due to the homebuyers tax credit, roommate rental income over the next year, and what I would have spent on renting if I didn't own) which should be slightly above the low end of what it's worth based on the couple of houses in my neighborhood that have sold over the last 6 months. I suppose it's good to at least be breaking even, but I feel like the only compensation I'll be receiving for all of my (and my family's) time and effort put into it is a mediocre education do's and don'ts for buying and fixing up a house.

[C-Dawg]

I don't know that I'll keep posting regular updates here but...
It's been 1 year since I first started reading Jacob's blog and it took a month and a half before I started really doing something with what I was learning - but in that year I've had a slightly over 53% savings rate and increased my net worth by 67% going from just under 7 years of my goal ERE expenses to 11.5 years.
At this rate I'm about 3 years out from ERE. It feels good looking back at the progress I've made this year and the expectations I have for even better results over the next year.

[arebelspy]

Congrats John and well done. It takes discipline and courage to implement that much change.

[C-Dawg]

Hit some milestones this month.

1/2 of the way to my goal basic living expenses FI mark.

Also hit a new low for expenses.
I've also come to the decision that 2013 will be the last year I work full time behind a computer all day long. I won't be FI at that point - but I'll be close enough that I'll feel comfortable giving up a decent amount of salary in return for either more freedom or doing something more satisfying. Most likely I'll try to negotiate some sort of half-time deal with my current employer (I'm pretty sure they'll be open to it). At half my current salary starting in 2014, I'd still be only 3 years from full FI. If my current company doesn't go for it - I know I could get work consulting on my own - or I could just go take a low paying job doing something I find more satisfying as long as it covers my living expenses. Even if I wasn't able to ever save another dime, I'd still be FI before I hit 40 just letting what I'll have saved by then grow on its own.
It's really amazing what a little "fuck you" money will do to your attitude towards work.

[C40]

Awesome! Great progress - halfway to FI in only one year!
You must be pretty dang good at work (that's a very nice income)

[anomie]

It's really amazing what a little "fuck you" money will do to your attitude towards work.

Indeed. Bittersweet for me was that feeling when I quit a full-time gig when I was less than a year out from paying my mortgage.
I have seen several similar comments in these forums from others who feel the itch and pull the plug to soon (from a financial planning perspective)..
The longer you can 'stay the course' with your primary full-time job, the closer to FI you will be.
Though, in the end you must tend to your sanity first, FI second.
good luck.

[C-Dawg]

@C40 - Thanks! I wasn't starting from 0 - saving young had always been something my dad emphasized so I had at least been doing my IRA since I started working at 16 and 401k as soon as I had jobs that offered them.
As far as the income goes - I do think that I'm pretty good at what I do - but I also happened to pick up the right skillsets (learned a pretty new programming skills just before it started getting in demand in my field) at the right time. It's amazing what a 3 way bidding war between consulting companies will do to your salary.
@anomie - I'm very aware of what staying the course as long as possible will do towards getting me to FI. That's what has gotten me through the past year and what will get me through the next. It's a constant debate I have with myself - so I could see changing my end again come the end of 2013 - but as of right now, I'm pretty sure I won't be able to take it any more.