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Saturday, December 3, 2016

I’m FI

Posted by Tim Stobbs on November 22, 2016

Yes, it has happened.  I’ve hit the mathematical point of financial independence (FI).  In short, my investment income will exceed my portion of the expenses and my job is completely optional.  You see I knew this point was coming very soon, it was really just a matter of what month it occurred.  The second our investment net worth exceeded $507,000 my job became redundant, I don’t really need to be there anymore to pay the bills. So you may be thinking I should break out a bottle of bubbly and cake to celebrate, but I’m not because here is the fine print: I’m financially independent, but my wife isn’t.

WHAT?!?!?

Okay calm down while I explain things a bit.  First a bit of history, I’ve known my wife for my entire career and we have an agreement since the start of our marriage (way back in 2000).  Since I stood to earn the most out of both of us, my career ended driving where we lived in our relationship.  I’m the main reason for moving cities and my wife then picks up a job where ever we end up.  Of course she gets input to every move, but ultimately I’m to blame for all of them.  The flip side of this was the fact we knew early on I would be the one to earn more and thus we have never bothered with the idea of splitting the expenses 50/50, separate bank accounts or other such nonsense.  The money is rather ours and we work together despite the fact I’m currently putting in roughly nine times what my wife does.

So the fall out of this particular situation is getting me to FI has been the longer part of the journey, so getting here is a big deal.  My wife’s portion to get to her to FI is MUCH smaller and here is the other major factor, she doesn’t plan to quit anytime soon anyway.  After all, she is self-employed only works a few hours a day and is very picky about her clients and likes her job.  So why would she quit?  She is basically semi-retired already (or working part time, depending on how you view that half filled glass as empty or full).  I’m just trying to catch up to her.

You might have noticed our investment goal is $550,000 or higher, which is higher than the current investments.  This is because we need to put enough money aside that the money can keep growing while my wife continues to work and hit full retirement in the medium term (~ 5 years).  As I mentioned before, I’ve shifted goals to semi-retirement and thus I actually don’t need to be fully FI for both of us prior to leaving work.  Of course I do need enough investments that we can get there in the longer term and any other expenses I see on the immediate horizon.

So now the question is how much padding do you want in your calculations?  Our $550,000 number is the floor amount (which includes an emergency fund  for living expenses – $15,000 in the even the markets drop like 10% or more in a year) and now I’m just debating how many other expenses I want to pre-save prior to leaving my day job.  The list includes the following:

  • Big Vacation Fund – $10,000 (we plan to take the kids to Disney in the next year or two)
  • Renovation Fund – $5000 (money to fund various projects I want to tackle in the house)
  • Car Replacement Fund – $5000 (a start to saving for the next car)

After that I’m basically looking a bit more and deciding on what to call it, perhaps the ‘Worry Fund’. It’s sole job is to give me a bit more of cushion to put at ease all the little worries in my head that include but are not limited to: sequence of return risk, lots of stuff going wrong in the same year (like a new water heater, car repairs, travel for a funeral and house insurance claim), not getting a ‘fun job’ for a while after I leave my day job, unusual expenses that I didn’t plan on like a sharp increase to taxes or utility bills and what ever other horrible scenarios my sub-conscious can come up with.   The amount of this fund keeps going up and down as I work through various exercises and potential outcomes.  On the extreme side, the worry fund could be as low as $0 as I really don’t need it.  Yet on the other side it could be $50,000 if I want to cover everything.

The real answer I expect won’t be entirely logical, but rather emotionally driven by answering: do I feel I have enough?  Also tied to this decision will be: how much am I enjoying my job right now?  I sometimes think there is a sword fight in my head between these two concepts and to the victory goes the control of my early retirement notice.  Yet I finally came up with something simple to help me decide: I will save enough to cover the first six of my early retirement so I can be completely guilt free break after I leave work.  Cost $12,000.

So there my final target number to leave work is: $582,000.

The Stuff in Your Head

Yet perhaps the oddest thing I realized about hitting FI…it’s only a number.  My life won’t change because of it.  It does empower me to make additional decisions, but it of itself isn’t an agent of change.  No choir will sing when you get there, no rainbow will appear, you likely won’t quit work right away because you want some additional security before leaving your job.

What it does allow is you to change how you view your world.  Is work something to endured or something you choose to do?  You can decide which one you want to believe.  Do I continue at my current job or find a different one immediately? I can decide.

Yet the biggest change for me will be I’m giving myself permission to dream more about what I want my life to look like after leaving my day job.  You see for a while here I decided that dreaming too much about that was painful.  It was too far off and it just made me depressed if I spent too much time thinking about the future rather than living the present.  So now that I’m FI, I know it isn’t too long to the early retirement (ER) part of FIRE and I’m starting to think in a bit more detail about:

  • How much structure would I like in my days?  I think I want to avoid the alarm clock but having some guidelines wouldn’t be a bad idea to start with.  Going completely without any structure to my days may be too big of a shock.
  • Do I want to plan any projects for right after I leave work? A few moderate ones.  I won’t mind a to do list that I can tackle as I see fit.  So some days I may only get one item done, other may be more and others may have nothing done…no one forcing me to productive anymore.
  • How much alone time does my wife want?  After all she works from home and spends up to five hours a day by herself, so having me around all the time might be a bit of shock.  So we need to discuss this.
  • What new things do I want to do? Take a course in something new, or get involved helping out a different organization…or choosing nothing at all for a few months.
  • Just how much writing do I want to do? Does my hobby turn into a full on second career or just stay a hobby but with more time? I don’t know yet.

Yet I’ve noticed since hitting FI I’m allowing myself to actually process my emotions about coming up to ER.  I’ve had the odd dreams that are filled with feelings of being unsure of myself, tossed into a new situation and of course fear.  Fear?!?! YES fear! It is scary to leave behind the world you know and move onto something else.  Change always brings some fear.  Yet below that there is this deep relief, the tension of life is fading away and the end of a very long journey is getting close and the excitement of a new journey to start.

I don’t know exactly how this will turn out, but I’m curious to see where it goes.  Thanks for joining me on the ride so far (and reading to the end of the REALLY long post).

10 Years of Blogging

Posted by Tim Stobbs on November 9, 2016

Ten years ago today I decided to create a blog and wrote my first post.  The idea was simple I wanted to retire early and I picked a number out of thin air of retiring at 45.  It sounded good.  Really that was it.  The blog wasn’t anything particularly special and I really didn’t have a bloody clue on what I was doing, but I did enjoy writing and I learned a lot from people the commented.

Now ten years later just about everything has changed.  I have had seven different jobs during that time, had two kids, got a dog, moved houses but still have the same wife (or does she still have me…I can never tell the difference).  The blog has grown to 1878 posts and 11,695 comments so basically together we have written several books worth of text between us…good job!

As for my retirement goal, well I am far exceeding just about every expectation I had for my goal.  I will likely be in a position to semi-retire before my 40th birthday.  How the hell did I managed to take a vague goal with no plan into exceeding the original goal?  Well I have looked back on some of my previous posts and data to come to the following key drivers:

  1. I believed it was possible. Pardon?  Honestly, without the thought that I could I would have never gotten to this point.  It would have been easier to give up many times, but I kept at it.
  2. Aim slightly lower on savings.  I always left a buffer to my planned savings in a given year so I would often exceed the initial target.  If I thought I could save $12,000, I would aim for $10,000 instead.
  3. Be realistic on investment returns. I always aimed for a 5% real return on investments (given inflation has been 1.6% per year over the last decade that would work out to 6.6%).  Then proceeded to exceed that most of the time (notable exception was 2008, but 2009 made up for that).
  4. A bit of luck.  We managed to buy a house in Regina prior to the local housing boom which saved me about $200,000 off my house’s current value.  So yes there was some luck involved.
  5. Assume no raises in salary beyond inflation.  As noted above annual inflation for the last decade has only been 1.6%, but my increases in salary have exceeded that.  Mainly because I changed jobs and asked for more money rather than annual increases.  In total, I have exceed inflation by an additional ~2% a year, which isn’t much but it does add up over decade.

Yet only enough despite all of the above the biggest thing I have learned in ten years is this: what’s in your head matters more than your wallet or bank balance.

I know you were expecting something a bit more profound, but developing an awareness of your thoughts and adjusting your life to your particular interests is the most critical thing you can learn to do to help you retire earlier.  After all, the math of early retirement is very basic the more you can save of your take home pay the sooner you can retire.  So 20% is good, but 60% saving of your take home pay is better.

Yet what really changes during the journey is understanding yourself and what you need to know is when you have enough to try your hand at early retirement.  Understanding your own personal tolerance for risk and your own fears is key to that and you won’t learn that from a book or reading a blog, but rather looking at the thoughts in your own head.

For me personally I realized that I don’t actually care about doing some work, that I’m more than willing to trade a bit of work over the decades in exchange for entering my semi-retirement period earlier.  I think the average person grossly under estimates one of the key assumptions to the entire 4% rule which is: you never earn any external sources of income (only investment income).  No government pension, no income form odd jobs or hobbies, no gifts and no inheritance.  In my particular case I am sure I will break every one of those, so I’m willing to roll the dice with more risk in my plan than some other people.  I understand myself and my situation and I don’t expect it to apply to others.

So for this blog’s birthday wish, I wish you all the gift of self knowledge.  Find your own path the early retirement, it will take a lot of work and a lot of soul searching but you can get there.  Remember it starts with believing you can and then be willing to learn.  Good luck on your journey.

Oct 2016 – Net Worth

Posted by Tim Stobbs on November 8, 2016

The following is an update of Tim’s plan to retire early.  Please note we are mortgage free.

Our ultimate goal between investments and the home equity is a net worth of around $1 million.  The investment part of that target is $550,000 (or higher).

Investments

Accounts

RRSP $51,720
LIRA $15,390
TFSA $74,200
Pension $148,000
Wife’s RRSP $81,890
Wife’s TFSA $65,350
Wife’s Taxable $58,070
High Interest Savings Account $6990

Investment Net Worth $501,610 (increase of $4850 over last month)

Home Equity

Estimate $395,000

Spending

Last Month $1528

Would have been lower but we bought groceries at the start and end of this month.  Oh well, Nov spending will just be lower.

Trailing Last 12 Month Average $2597 (or $31,170 for the last 12 months)

Results

PF Score: 28.7 {Target 31}

Net Worth ~$896,610

Commentary:

Yah! We broke the half a million investments barrier this month!  That is a nice goal to reach and of course it means we are looking at saving our last $50,000 or so.  Which if the stock markets are kind we should be in a position for me to retire early some time next fall or winter but I will have to wait to see how it all falls out.

Any questions?

Net Investment Oct 2016

(click to make bigger)