spoonman's Journal

[Ricky]

I love reading these journals. And this one is different enough to stay interested. One thing useful about the public journaling method though is that it is a way to get suggestions and possible ways to be more efficient in what you are doing. No one here could disrespect your decision to leave out most of the numbers, but it's sharing those numbers where I have seen most authors get the most out of posting their journals. I've seen a lot of great and helpful suggestions that really changed things.

You've probably heard it 100x but you can do much more with what you have in your power to control now than with what you might have control of later. Regarding expenses, cutting your expenses here and there will be the fastest way to realize your target numbers, and test out the waters so to speak to find out if you can happily live on less. I'm sure you can, but I infer as if you are a little hesitant on the subject yourself after reading the entire thread.

As for the corporate BS and such, don't let yourself dwell on it too much. I know reading these FI minded blogs drill into your mind that corporations and companies are just shitty entities, but think of where you would be without them. Change your perspective and you will be much happier and incur zero guilt. Also realize that if blogs like these didn't make such grand claims about conventional lifestyle, they wouldn't be very interesting to read. For them it as much of a side income as it is a way of life, so there has to be some pretty radical posts to gain attention. I am all for FI and not being "bound" to a job, but work in itself is inevitable in life. Pull the trigger when YOU are ready, not when others say you should be. I only say these things because I think they will help you out since your plans for post-corporate seem vague and you seem a little weary on where you'll eventually end up (not to say vague plans are a bad thing at all - spontaneity has it's merits).

[spoonman]

@Ricky: Thanks for stopping by and the honest observations. I'm glad that you're enjoying the journal!

You are absolutely right that sharing the numbers can lead to lots of suggestions and possibilities for improvement. I am itching to share those numbers, but DW is not comfortable with that at the moment. I hope to convince her to share our numbers once we leave our jobs.

When we call it quits there will definitely be a period of transition where we'll have to get acclimated to the new budget, but I don't seriously doubt we'll eventually to pull it off. There's nothing truly magical about cutting expenses, especially when you have time on your side.

Indeed, work itself, be it filling out TPS reports or changing diapers, is inevitable in life. However, the 9-5 format (and everything that it entails) is held on a pedestal in our society, and that's what I don't agree with. There doesn't go a day when I don't think about how lucky I am to have my current gig because I come from a very humble background.

We'll be pulling the trigger in the 6-12 month horizon, for better or for worse!

[spoonman]

#031 02/24/2014 -- Interview with my Future Self

In this post I am gonna pose a series of questions to my future self. Upon quitting his job and setting up shop in a new city, my future self is to candidly answer the following questions.

Former Self: Gosh, where do I begin. Can you please describe to us how you feel right now?
Future Self:

FoS: It’s easy to assume that you are less stressed now than in your previous 9-5 life, would you say you experience significant stress these days? If so, what are the dominant stressors?
FuS:

FoS: Are you managing to stay within budget? What is the most challenging component of the budget?
FuS:

FoS: Do you feel the starting dividend income is high enough? Do you wish you had worked another year or two?
FuS:

FoS: What has the been the most surprising aspect of your adventure thus far?
FuS:

FoS: Do you miss the job? Are you experiencing some sort of existentialist crisis because you’re not spending most of your waking hours at work?
FuS:

FoS: Have you noticed a change in your sleeping patterns?
FuS:

FoS: How do you like the new city you live in?
FuS:

FoS: It’s probably too early to ask, are you thinking about taking on a new project?
FuS:

Those are all the questions I can think of right now. What else should I ask my future self?

(Edit: For those of you wondering, I will come back 6-12 months from now and fill out this questionaire)

[m741]

This is weird, but I like it. Should future self have already answered by now? Since he hasn't, is it because he doesn't exist?

What do you think happened to you?

[spoonman]

@m741: haha! I knew people would be weirded out somehow. The future self that's supposed answer those questions is the one located 6 to 12 months in the future (from the date of post #031), after leaving his job and primarily living off his dividend income.

Trust me, I haven't lost my marbles just yet =).

[spoonman]

and no, he doesn't exist just yet! =).

[saving-10-years]

Like your plans to interrogate FutureSelf and am copying those questions (with some adaptations) into my journal to anwser in my retirement. (Plans are not as exciting as yours but its a good discipline).

[spoonman]

#032 03/01/2014 -- February Dividend Income Update

February was a great month for us dividend-wise. We increased our forward dividend income by $648, the highest “organic” dividend increase since August of last year. Since we are in the midst of dividend growth season, $183 of the total came from companies that increased their dividends this month. That’s right, nearly 1/3 of the passive income increase this month happened all by itself! That’s one of the reasons why we love dividend growth investing. One of the companies that kicked ass this months was Pepsico, which increased its dividend by a whopping 15%! I would have to change companies in order to get that kind of bump.



Our annual forward dividend income currently stands at $15,569, ever closer to the next milestone of $16,000. We’re close to that notional milestone, but we’re gonna keep on trucking as hard as we can until the August/September timeframe. However, we will probably not have that kind of massive dividend income increase again because we have a number of financial setbacks to deal with, which I will write about in a future post.

I almost forgot to mention that we received $1247 in dividends this month, all of which got reinvested in well-valued companies, namely TGT and KMP. The dividend income pattern is very clear by now: the first month of a quarter is low, the middle quarter is alright, and then the third month is very high. None of that matters, of course, because eventually we will just have a “buffer” of cash in our brokerage account so that we can pay ourselves a stable monthly income and ride out these fluctuations.

I am starting to keep a closer eye on our expenses, especially the food category. We hope to set our food budget to $400/mo after we quit our jobs. The more I look at our monthly food expenses, the more I feel $400/mo is realistic.

We had one small triumph this month: we spent $0 on gasoline! Yep, that car pretty much just sat there most of the month. We’re thinking of getting a car cover to keep away dust and stuff. I don’t think I’ll miss a car at all in the future.

[chipmunk]

spoonman you are tearing it up with dividends, nicely done!

Two questions:
1) Can you offer any more details about your portfolio? Specifically, do you own any bonds or are you 100% equities? Also, you said in your first post that you own ~30 companies. Do you own any mutual funds as well?

I'm interested in this point because I like dividend-paying stocks but I'm limited to mutual funds in my work retirement accounts. I can choose between about 15 actively managed funds, a list of Vanguard Target Retirement funds, and Vanguard index funds. It's basically an indexer's dream because the index funds are the institutional share class with expense ratios generally less than 0.05%. I appreciate the low expense ratios but I don't appreciate being so limited in my investment choices. I was wondering if you've experienced anything like this and how you dealt with it.

2) How do you handle all of the extra tax paperwork that comes with KMP?

This question assumes KMP is held in a taxable account. I'm interested in this point because I'm thinking about starting a position in one of the Kinder Morgan securities. I'm stuck with mutual-fund only work retirement accounts and the IRAs are fully allocated at this point. So, taxable is my only option right now unless I want to wait until next January. The other two Kinder Morgan securities are available but they come with their respective advantages and disadvantages.

I'll understand if you're not allowed to divulge any details (don't want you to get your GI-Joes taken away). I'm restricted from giving certain details as well.

[m741]

I'd also be curious to hear what you're investing in. It's tough for me to find good buys of blue chip companies right now.

[spoonman]

@chipmunk:

Haha! GI Joes!

Here’s a list of my holdings:

ADP
AAPL
MSFT
IBM
T
VZ
JNJ
MDT
XOM
BP
CVX
COP
KMP
KO
WMT
TGT
PG
CL
CLX
KMB
PEP
SYY
MCD
LEG
WM
ITW
RTN
NSC
NUE
APD
ED
NWN
PNY
CINF
WFC
AFL
UHT
NNN
OHI
O
DLR

I am 100% invested in equities. I would invest in bonds, but they simply haven’t been an attractive investment right now because the yields are not that great and because there’s been a constant chatter about a bond bubble for years. Maybe in the future when the Fed takes its foot off the pedal I might invest in bonds.

I don’t think I will ever invest in mutual funds because they don’t provide me with an ever increasing source of income. At least I’ve never seen mutual funds that have impressed me as much as your typical blue chip dividend paying company. Then there’s also the silly expense ratios they have.

Dealing with KMP was a breeze. They mailed me a statement a few weeks ago and my tax accountant just had to extract a couple of numbers from it. It was far easier than people made it out to be.

About my 401k, I’m just letting that function on autopilot. It’s on some default Fidelity fund that I will liquidate when I roll over my 401k into an IRA. I will then invest that money in about 10 of the companies above and also implement a SEPP with my bank. The annual dividends from the stocks will more than cover the SEPP and leave a little extra for me to reinvest (I will opt for a SEPP with constant payments until I am 59 1/2). Btw, I don't have the option to invest in individual companies, just a number of ETFs.

@m741: yeah, there aren’t that many good buys these days. Here’s a quick list of companies I’ve been allocating money here and there:

TGT
WFC
JNJ
MDT
BP
CVX
KMP
WMT
PEP
KO
T

JNJ and MDT are barely affordable right now, but I need to strengthen my healthcare holdings.

[chipmunk]

Wow, thanks for the info. Your list of holdings contain many of the usual suspects frequently discussed by the dividend growth investing community. I count seven companies on your list that are on my list of holdings as well.

I share your sentiment regarding bonds.

I am my own tax accoutnant and don't want to create too much extra work for myself. I'm fairly early in the accumulation phase and don't plan on using my passive income to cover expenses for several years. That's why I find KMR particularly interesting. It's essentially an automatic DRIP with no extra tax paperwork. Whenver I'm ready for the income stream I can sell KMR to buy KMP.

Our 403b and 401k accounts are defintely getting rolled over to an IRA to allow more flexibility. SEPP or Roth conversions will follow.

[Ricky]

I've read a bit on the way KMR distributes earnings by shares and KMP pays a traditional dividend, and I understand KMR is much more complicated tax wise, but shouldn't the cost basis be provided and calculated on the tax form from your broker anyway?

As for KMP, it shouldn't be any more complicated than a 1099?

[spoonman]

In addition to the 1099 from your brokerage, there's an additional document sent by KMP itself that contains additional tax information. But that information is plain vanilla, it's pretty easy to digest and incorporate into the overall tax picture. I'm glad I didn't get dissuaded from investing in KMP, these days it's not that difficult to handle these things.

[spoonman]

#033 03/07/2014 -- Future Budget Pr0n

In this post I would like to present our target budget after we quit our jobs. The major categories are shown below (all amounts are in US dollars).

• Rent 750
• Food 400
• Utilities 100
• Internet 50
• Personal Care 50
• Household Supplies 10
• Health Insurance 50
• Financial Costs 15
• Entertainment 16
• Transportation 40
• Discretionary Money 200
• Cell Phone Plans 20

-------------------------------------

• Monthly Total 1701
• Annual Total 20412

Before I walk through every category in the budget, let me first say a word about our projected income. Our main dividend portfolio in our taxable account will generate at least 1375 per month. Another 300 per month will come from a couple of IRA SEPPs. That's a total of 1675 per month. I think it's very possible that it might be higher than that, but if it isn’t we’ll just have to tweak our budget a bit.

Now, let's start with the top category: a rent budget of 750. This is a rather generous amount, especially by ERE standards. When thinking about FI, I've normally allocated 500 to this category. In most places in the PNW, we are likely to spend between 500 and 750 for a 1 bedroom place. It wouldn't be hard to settle for something around 600 in the outskirts of a large city, but I have to confess that I wouldn't mind indulging in a slightly more expensive place located closer to grocery stores, libraries, parks, and good public transportation. I have grown rather fond of the high walkscore of our current apartment, everything is within a 15 minute stroll. If we settle for an apartment with a rent of 600/mo, then our projected monthly expenses will be 1551, which is well within our projected monthly income.

In the food category, I have a lean 400 per month for the two of us. We spend more than that now because we eat out a lot, but I believe if we change our habits and start cooking at home more often we'll be able to stay within budget. There's a plethora of examples in these boards of couples that spend less than 300 per month. We'll get the crockpot, we'll follow the advice on budgetbytes.com, and we'll learn to dedicate some quality time in the kitchen.

I've allocated 50 per month on personal care. This includes haircuts, soap, body lotions, hair products, etc. Our current spending in this category tends to come in clumps; one month we'll spend nothing and the next we'll spend 80. DW thinks this is unrealistic, but I guess time will tell. For household supplies (i.e. cleaning detergents, dishwashing soap, etc) I only allocated 10 per month because these items tend to be cheap and last a long time.

In the transportation category I have a sporty 40 per month. This is based on the fact that eventually we will get rid of our car (so no insurance, registration, gas, and maintenance) and we will live close to all of our needs. I suspect that in the beginning we will spend a bit more on this category because we will spend a lot of time
exploring the city. This expense might also come in bursts because we might decide to go on long distance trips here and there (I heart Amtrak).

As far as utilities are concerned, I am expecting to pay around 100 for electric and gas. Things like water and trash are usually included in the rent. The basis of our utility estimate comes from our current usage and from what I know other forum members that live in the PNW tend to spend. A 1 bedroom apartment is not gonna require that much power and gas. We've paid around 45 per month for internet for the last few years, so I don't expect that to change much.

And now a word about the most mysterious category: health insurance. I got on one of the PNW healthcare exchanges and entered 22K/year as our income (higher than our projected income in the first year so we can avoid medicaid). There are some HSA-eligible plans with reasonable deductibles than run for around 50 per month. We could opt for even cheaper plans with higher deductibles, but I think the aforementioned class of plans is a good balance between monthly premium and annual deductible. I should note that we are still quite young and don't expect to go into a hospital that often. In any case, we'd rather pay for a private plan than go for medicaid because I have a feeling the medicaid experience will be disappointing.

The next set of categories are associated with our wants. In theory, we have the option to throttle these expenses accordingly in order to stay within budget.

In the entertainment department I am only allocating 16 per month to cover fixed entertainment expenses such as Netflix and Hulu. It's difficult to predict entertainment expenses, so I just created another category associated with personal discretionary expenses. The idea here is that one month we may decide to pay money for entertainment or just keep it low by hanging out at the library.

We are allocating 200 per month (100 per person per month) for personal discretionary expenses. If you ask me, once my needs are met, 100 per month is a very nice amount. We can decide to spend this on going to the movies, ice cream, eating out, music downloads, and occasional shopping. I think this is a very generous amount and don't really expect to use it all that much. DW, on the other hand, said that she would spend all of this on extra food =). She's definitely the foodie among us two, but I doubt she'll want to eat out all that much. We'll see.

15 per month will go toward subscriptions to websites that provide valuable financial data about the companies we own. The current cost is actually 10 per month so I am being generous here.

I currently spend about 10 per month on my cell phone plan with PTEL, so I think for the two of us this won't be higher than 20 per month. With the advent of things like Google voice, cell phones are not an absolute necessity anymore. This is more of a convenience so we can contact one another when we're out and about.

Will we adhere to this budget in the first month after leaving work? No. Although we will try our best to converge on this budget, my realistic expectation is that it will probably take at least two months for us to settle into a rhythm. I should also note that our dividend income will grow at an annual rate of at least 6-7%, so we won't be stuck at these income levels forever.

Currently we spend a ton of energy solving problems for our employers, I'm sure that once we quit our jobs we'll be able to channel those energies into making this budget work. We'll have more energy to think creatively about food. We'll also exercise more and get better sleep. We'll also think of creative ways to generate a little side income, which will make a huge difference in making all of this succeed.

[George the original one]

> In the transportation category I have a sporty 40 per month.

For the record, in Portland, a monthly bus pass currently costs $100. If you're not commuting or exploring daily 20 days per month, then it's probably not a good choice compared to daily bus tickets ($5). The 2-hour bus fare is $2.50, a good deal if you can complete your round-trip errand in 2 hours.

Capital expense of a bicycle makes good sense in Portland

[robby152]

Are you planning on buying clothes with the 100 pp allowance?

Also, how do you plan on handling Christmas/birthday gifts?

I am inspired by seeing how low your health insurance is (I am assuming that is post-subsidy). When I plug my info into the Kaiser Foundation calculators, it is much higher, but I do have a larger family and am planning on higher income. Thanks for sharing!

[spoonman]

@George the original one: Thanks, that's a great tip. $100 is pretty darn steep if you don't use it everyday, so I think I would opt for the day passes. Hehe, yeah, I think a bike is worth the captial expense in Portland. I get the impression a city like that is very bike friendly...they should do a Portlandia episode on that =).

@robby152: The 100 pp monthly allowance can be used for whatever we desire. I forsee myself only using a fraction of it each month and saving the rest for special items and occasions: concerts, trips on the Amtrak, birthday presents (I only need to worry about that once a year), and games/entertainment.

The low cost I am getting from the exchange is post-subsidy. It's only two of us, we don't smoke, and we're very healthy. I think Kaiser tends to be a bit more expensive than some of the other providers, but I think that's the case because they feel they have great brand recognition and offer holistic services. I've been a Kaiser member before and actually liked them. If I see myself staying close to a Kaiser location then I will seriously consider insuring with Kaiser.

[George the original one]

Kaiser-Permanente's weakness in the Portland market is that the facilities are in the suburbs (or above the shipyards in North Portland).

[Psyksis]

Great read so far! You're about to start the second leg of the journey and I'm just starting my first. Inspiring and informational journal, I appreciate the time you dedicated to being so thorough.

As for a location, I know you guys are looking at the PNW, but afterwards if you are looking for an affordable area in Central America check out Nicaragua. For some reason most people over look it as an option even though it is the largest country in the region! They are a country that is definitely trending upwards!