MDS' Journal

mds · Post by **mds** » Mon Jul 09, 2012 3:12 am

June 2012 - Summary
I'm 28, live in a big expensive city and I plan to use this journal to track my path to early retirement for the next 5+ years. I'm going to start small and each month write up a summary my monthly expenses, monthly income and a snapshot of my net worth and investments. While I'll include the numbers from my retirement account, I'll be focusing on my non-retirement account because I plan to retire far before 65. In the future, I won't include the breakdown of my retirement holdings.
Non-Retirement Holdings:
$3,287 - Vanguard Total Stock Market Index Fund (VTSMX)

$9,013 - Vanguard Total International Stock Index Fund Investor Shares (VGTSX)

$6,934 - Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)

$10,736 - Vanguard REIT Index Fund Investor Shares (VGSIX)

$17,294 - Vanguard Total Bond Market Index Fund (VBMFX)

$7,107 - Apple, Google, GE and Tesla Motors

$1,446 - INVESCO VK COMSTOCK A (ACSTX)

$17,532 - INVESCO S&P 500 INDEX A (SPIAX)

$20,000 - CD

$55,925 - Cash

$75,000 - Stock from my employer (estimated, but fairly accurate)
Total - $224,274
Retirement Holdings:
$4,098 - Vanguard Total International Stock Index Fund Investor Shares (VGTSX)

$5,248 - Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)

$20,220 - Vanguard REIT Index Fund Investor Shares (VGSIX)

$3,008 - Vanguard Total Bond Market Index Fund (VBMFX)

$27,821 - LargeCap S&P 500 Index Separate Account (NX002)

$24,255 - Vanguard Wellington Fund (VWELX)

$15,565 - Diversified International Separate Account (IS002)

$2,505 - MFS Research Bond A Fund (MRBFX)
Total - $102,720
Summary:
Total Net Worth - $326,587

ERE Net Worth - $224,274

Potential dividend income (4%) - $8,971
Expenses:
Rent 1,325

Alcohol & Bars 240 (absurd!)

Groceries 117

Gifts 93

Clothing 82

Restaurants 72

Travel 61

Unexpected expenses 90

Business Expenses 26

Education 25

Phone bill 25

Pharmacy 4
Total $2,160
Income:
Normal Dividends 126

Unexpected dividend 4,400

Income 6,129
Total $10,655
Savings rate: 80%
Notes:
- I'm very happy with my savings rate this month, but this was a very abnormal month since I was traveling for 3/4 of the month covering food with either cash taken out in May or my employer's per diem. More importantly, I received a huge dividend that will probably never happen again. Taking that dividend out, my savings rate was 66%.
- I didn't realize it until I wrote all this out, but it looks like the only monthly recurring expense that I have is a $25 cell phone bill. We don't have cable TV or a car and my internet is paid for. The main thing that stands out is the absurd amount of money that I spent on alcohol.
- I decided that I'm finished saving for old age retirement now that I've hit $100,000 in those accounts (a fairly arbitrary stopping point). I'm 28, so I'll have to wait 37 years to touch the money, which compounded at a conservative 5% should be about $600,000 by then. However, I will continue to contribute the minimum amount to get 100% of my employer's match.
- Mr. Money Mustache's blog recently convinced me that I'm being too conservative sitting on $55,000 in cash. I plan to slowly move $44,000 into investments and keep about $11,000 in cash. I feel ok with this since I have credit lines totaling about $45,000. Of course I could also cash out my CD for a penalty or sell some bonds. I know some people believe you should make investments in lump sums if you have the cash just sitting there, but I feel much more comfortable investing over time.
- I really need to find some ways to diversify my income stream. Right now I only have money coming from dividends (very minimal) and my full time job. I either want to start doing contracting jobs on the side or starting some passive web sites with advertising.
- I had an unexpected windfall of about $4,500, which won't be typical in the future. Dividends can be a bit misleading since I'll be paying taxes on them at the end of the year. Does anyone have a technique for dealing with this?
Goals:
-My main goal in July is to become proficient in Indian cooking. I will try to come up with a list of four staple vegetarian recipes that I can cook without consulting a recipe. This would involve getting a feel for all the spices and their relative proportions. So far I plan to be able to cook a good dal dish as well as chapatis from scratch. I'm toying with the idea of becoming an "at-home vegetarian" in that I won't buy any meat at home, but if I go out or go to a friend's place for dinner I won't hesitate to buy meat.
-I plan to finish the Early Retirement Extreme book. I'll probably try to read every post of MMM and ERE.
-I'd like to sell or give away all the clothes that I never wear. This will mostly be to relieve some psychic load and as a form of donation. It would be great if I could get a tax deduction too, but I don't know if the paper work would even be worth the time.

dan23 · Post by **dan23** » Mon Jul 09, 2012 3:35 am

Wow, are you me? If you take out the windfall your stats are nearly identical to mine. Also, I too am trying to learn Indian cooking (how to make a certain chickpea dish).

mds · Post by **mds** » Mon Jul 09, 2012 4:06 pm

If you start a journal I will definitely follow it then! However, I'm a little worried that I started out on a high note - abnormally low expenses and abnormally high income. I think July will be a little more normal and will have a lower savings rate. My rent is such a high percentage of my expenses, but it's something I don't want to change, so I'm going to try to minimize everything else (starting with alcohol) and then see if I can find new income streams.

mds · Post by **mds** » Wed Jul 11, 2012 7:08 pm

This month I started a "significant other book club" with my girlfriend.
The deal is that each month, one of us chooses a book and we simultaneously read that book and have a short discussion on the book after we're done. We both have Kindles that are linked to my Amazon account, so each book should cost us about $5 each (since we only have to buy one).
I came up with the idea because I was thinking of ways to "force" her to read the ERE book, hah! I figure she'll be much more excited about reading my selection of books if she can force me to read Fifty Shades of Grey.
But seriously it's a good way for us to get exposed to genres and topics that we normally wouldn't expose ourselves to. I find myself only reading things like Warren Buffet's biography, ERE, productivity, etc.
Having a discussion will definitely help us actually remember and apply some of the content.

Dragline · Post by **Dragline** » Thu Jul 12, 2012 1:32 am

My wife and I share books with dual Kindles that way too. It works great. We don't require each other to read anything in particular, though, which is a good thing because I dislike most fiction and she has no interest in finance.

mds · Post by **mds** » Tue Aug 07, 2012 11:06 pm

I'm happy to say today I achieved Jacob's fitness goal: 5000 overhead pounds in 10 minutes. I did 143 kettlebell clean and presses with 35 lbs (143*35 = 5005) in 9 minutes and 50 seconds.
I'm assuming he meant reps x weight = 5000.
I think my next goal will be a 50% increase to 7500 poundreps (that's a new unit).
I also own a 60 lbs kettlebell, so I may work that one in too.

mds · Post by **mds** » Wed Aug 08, 2012 12:17 am

July 2012 - Summary
I'm not very happy about my numbers this month, but maybe June was just abnormally good.
Here they are:
Rent 1,325

Shared expenses 309

Groceries 370

Food & Dining 136

Alcohol & Bars 108

ATM 180
Auto & Transport 77

Business Services 70

Travel 42

Health & Fitness 24

Shopping 13

Phone 25
Expenses: $2,679

Income: $6,181

Savings rate: 57%
ERE net worth: $231,859

4% of net worth: $773

% of average expenses: 32%
Target ERE net worth (4% SWR): 725,850

Years to target: 8
I did better with alcohol, but groceries were way up. I'd like to maintain at least a 65% savings rate in the future.
I'm going to stop posting about my retirement account because it's irrelevant to my goals. However, I may include Roth IRA contributions in the future since they could easily go towards my ERE goals after retirement. I'll have to dig through my paper records to find out how much I have though.
I still have a lot of cash sitting around (55% of my non-retirement account), so I'm moving $10,000 a month into investments until I reach my target for cash.
Finally, the years to target is the point when I would reach my desired net worth for a 4% withdrawal rate for my trailing 12-month expense rate (if my income stayed exactly the same as today and I have an average 4% increase in my portfolio for the next decade). It's just a rough, conservative estimate for my years to FI.

anomie · Post by **anomie** » Wed Aug 08, 2012 3:04 am

I don't mean to sidetrack the prodigious progress towards your goals - go! go! ---but the mention of Kindle books and the like prompt an inquiry into whether there are some digital alternatives to purchasing ....... perhaps
Epub and the query that others may be interested in alternatives to funding the 20th century publishing regime, via tools like googling " xmmmy book pdf" or to participate in closed torrent sites such as http://www.myanonamouse.net/
i dunno perhaps is all a waste of time...

Buy! Buy! Buy!

mds · Post by **mds** » Wed Aug 08, 2012 4:23 pm

You can find books published before 1942 for free on Amazon or you can go to Project Gutenberg for even more. I usually get bored of the classics after a while and long for books written in a modern, colloquial style. When that happens, I just buy these newer books for $10-$15, which is actually $5-$7.5 since I'm splitting them.

GPMagnus · Post by **GPMagnus** » Fri Aug 10, 2012 9:52 am

@ mds Nice going and don't be too hard on yourself - posting is a big enough thing - most of us don't do it (me included)
As for your years to FIRE - are you planning on living in the same city? If not, its likely your expenses would be quite different - check your assumptions on ERE life... you might be able to get there sooner than expected!

mds · Post by **mds** » Mon Aug 13, 2012 8:11 pm

GPMagnus, that's a good point. I haven't really considered where I'll live in my FIRE years. Ideally, I'd like to live in a lower cost area, but I really like living *in* a big city, not outside. I really can't see myself living in the 'burbs, but I'm sure that could change. Since it's ambiguous, I think I'll stick to my trailing 12-months of expenses metric since it's the most conservative measure.

mds · Post by **mds** » Tue Aug 14, 2012 5:36 am

I decided to start a blog that moves in parallel to this journal.

FI Fighter · Post by **FI Fighter** » Tue Aug 14, 2012 6:45 am

Thanks for sharing. I'll be tracking your blog with much interest.

akratic · Post by **akratic** » Sat Aug 18, 2012 12:02 am

Why is money in your retirement accounts irrelevant to your goals? You have penalty free access to 401k and IRA accounts at any age, and all you have to do is google 72t or SEPP, crunch a few numbers, plan a few things, and fill out a little paperwork.

mds · Post by **mds** » Sun Aug 19, 2012 9:24 pm

Akratic, you're right. I finally came to this conclusion 5 days ago on August 14 to be exact

I posted about it on my blog: "I’ve been going back and forth on including my retirement account in my progress reports. I had previously decided not to, but it is actually real money since I can withdraw the principal penalty and tax free. I could also withdraw gains (after paying tax and penalty), so I’ve decided to keep them in my calculations. If I wanted to be really accurate I could estimate my tax rate when I retire and only include a percentage of my retirement balance in my net worth figure."

Is what I wrote true about the penalties? I thought you would have to pay a 10% early withdrawal fee in addition to taxes (if it's a 401K).

GPMagnus · Post by **GPMagnus** » Mon Aug 20, 2012 5:52 pm

@ mds
There are many great cities you can live *in* without the associated high living costs - in the US, Chicago is more reasonable (I assume its the weather) but all over the world there are really great cities - you just have to expand your horizons ... e.g. Berlin - cheap and smack in the middle of Europe with trains taking you almost anywhere in continental Europe within a few hours ... check out this link for COL for expatriates:
http://www.mercer.com/press-releases/co ... g-rankings
NYC is #32 - the list only goes to 50 but Paris is at 37, Amsterdam at 57 and Prague at 69 ... not bad, especially when you consider the beauty of Czech women and the quality of Czech weissbier

akratic · Post by **akratic** » Tue Aug 21, 2012 12:53 am

You definitely do have to jump through hoops to access 401k/IRA money early without penalty. The main one is that when you designate an account for SEPP, you can only withdraw ~1.5% - 5% per year from the account, and you have to keep withdrawing for years. I don't really see this as much of a constraint though, as most people on here are trying to live on a ~1.5% - 5% withdrawal per year.
More realistically though, if you retired at 30 and had roughly half your savings in taxable accounts and the other half in tax-deferred, you'd probably just burn the taxable accounts from ages 30-60, and then tax-deferred ones to 60-90, so you don't really need these tricks. They *are* there though. And there's other ones too like penalty-free withdrawals for your first home or for education, and being able to withdraw Roth IRA contributions penalty free.
Basically I think there's so many tricks that someone on the ERE track should be able to get at everything they need from their IRA accounts without penalty. However, they're unlikely to need to do so, choosing instead to spend from taxable accounts wherever possible. The IRA accounts still count as assets though! If you have nothing at all in taxable accounts, but enough in tax-deferred accounts to provide a 3% SWR... you are FI.

mds · Post by **mds** » Tue Aug 28, 2012 12:47 am

@GPMagnus - the only cities I want to live in in my 20s and early 30s are unfortunately very expensive. This is my list: NYC, SF, DC, Austin, Denver and Boulder. The last three are actually pretty reasonable from what I've seen. When I have kids, I'd be fine living out in the country which would be considerably cheaper.
That list is pretty interesting. Tokyo is one of my favorites and is #1 on the list. Maybe I just have expensive tastes when it comes to cities!
@akratic - that settles it then. I'll include my retirement savings in these reports. When I was a kid playing Monopoly I used to hide money in an a separate pile so I could trick myself into thinking I had less money than I actually had. Later on in the game I'd be pleasantly surprised at my hidden war chest. I guess I still have a tendency to do that as an adult.

GPMagnus · Post by **GPMagnus** » Sat Sep 01, 2012 10:27 pm

@ mds Glad you enjoyed the list

I lived in Austin for a year and loved it. Depending on where you work, there are lots of reasonable options to live in and the BBQ within a 1-hour drive cannot be beaten

Denver / Boulder also sound nice ... but why the h*ll would you wish to live in DC?

mds · Post by **mds** » Sun Sep 02, 2012 2:10 am

I just happen to know a lot of people there and went to college nearby. I'll admit, it's probably last on the list, but definitely before somewhere like Boston or Chicago (weather).