Getting There Journal

[GettingThere]

I need to stop obsessing over your accounting, but I want to make one more observation then I promise I will stop unless you ask.

Assuming the joint account contributions are expenses you need to add them back to the revenue line and show them on the expense line to a get a proper idea of your savings rate.
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But that $1,800 can't be counted as an expense either because we don't spend all of it. Much of that is saved, and sometimes invested towards a larger mortgage payment, or once towards buying a new house.

It gets confusing. Do you think I should still throw it in there?... also, I don't even see it, since it is direct deposited from my paycheck.

I appreciate the attention to my accounting. Where are you located?

[BlueNote]

@ GettingThere I am in Toronto Canada

Your question about what to do about the joint account is a good one.

For ERE purposes you ultimately want to make sure you have enough extremely reliable cash available to cover all your expenses as they occur in your "retirement" period. This generally happens when the value of your "current assets" (all your stuff you could sell in a year) reach around 25 times the cost of one years expenses. This implies a 4% annual withdrawal rate (1 year / 25 years) which is considered safe by many academic studies based on historical investment portfolio's. See this article from Jacob for more details.

A house generally isn't considered a "current" asset because most people aren't going to sell their house to cover yearly expenses. It still goes into your networth but not your current assets.You could contribute towards your retirement by providing rent income if you rent out a portion.



So try to take out any expense amount from that joint account that you think will still apply when you hit retirement and move it to the expense line. It's hard for me to say exactly what to expense in this case but I would suggest trying to estimate your future needs. You're going to need to maintain your home so you want to make sure you can replace the roof, fix the plumbing, etc. So maybe a house maintenance contingency expense is in order. If you get a mortgage your going to have interest expenses. You may have to pay land taxes so on and so forth.

[GettingThere]

So on average (including roofing, wedding, houses) we saved 35% of the joint account. Should I put in only 65% of what I contribute as a personal expense? And this has been an unusually lavish year. Should I go month by month, or just say what I contribute is an expense as a whole?

The 2nd house we have IS income producing. We bought it foreclosed, cash, and are renting it out. Our house is a two family, which pays for itself mostly. Rental income gets put into the joint as well.

[BlueNote]

I think I am making this more complicated then it needs to be.

As soon as you make enough passive income to cover all of your expenses your are FI. This we all know and are working towards in our own way.

Getting to early retirement through ERE, to me, means optimizing your expenses so they are a small fraction of your income. Save and invest the surplus income wisely. Eventually get to the point where the income from investments can safely provide for all your optimized expenses. Learn to live happily on the reduced expense foot print which is more of a journey then something you could change overnight.

I think you need to get an accurate picture of where you are now in terms of income vs expenses. So using an average of the expense portion of your joint transfer is a good idea. Cost allocation is actually a whole chapter or two in most accounting text books. Just make sure to recalculate the average if things change, which they should if you reduce expenses in an ERE way.

Once you know what your ongoing expense requirements really are you'll likely need to start cutting expenses to get into ERE territory. Generally this means creative expense reductions from the big 3 expenses drivers (Housing, Food and Transportation). However in your case that might be different but Mint will give you a decent category breakdown.

Mr Money Mustache explains the math better then I can but you could probably retire in 16 years or so if you saved 50% of your take home income. If you get to a 75% rate and it's sustainable you could retire in about 7 years starting from scratch.

You just need to sit down and create an accurate line by line breakdown of all your current annual income minus annual expenses. Go through your banking history, use Mint, make estimates based on what you know is going to happen. Divide the annual numbers by 12 to get the monthly income minus expenses, this way you don't have to worry about amortization it will be done automatically. Then you'll know your real savings rate and can use the ERE math to your advantage. If you use incorrect expenses the math will give you incorrect solutions (garbage in garbage out as the saying goes). When you make changes just recalculate the annual or monthly amounts using a spreadsheet, Bob's your Uncle.

[GettingThere]

Got some feedback from my coworkers that my wardrobe needs updating. I am losing some weight, so my clothes are not well fitted, and aren't 'dressing for the job I want'. Let's see if this career thing goes anywhere before I retire. Sigh.

$289.81 Wardrobe Updates
$85.92 Cash Spending
$82.31 Cell Phone
$43.62 Pharmacy & Doctor
$40.89 Eating out
$5.00 Fees & Charges
$547.55 Total

$3,187.30 Income

Notes (to make @BlueNote happy) - this does NOT include an additional $1800 or so that I put into the joint account, nor any of the spending nor rental income that lives on that side. Groceries came from there this month.

Meanwhile, we put a bid on another house that got accepted! Woo! Downpayment will come from the joint account. We think it is in a neighborhood that is up & coming, for a house that was priced under market. Very exciting.

Also, my current net worth is at an all time high:

Net Worth: $263k!

[BlueNote]

@ getting, I am glad somebody here is trying to make me happy

Congratulations on the investment property, I hope you do well on it.