Our Financial Situation As Of 5/1/18

Before I get to this month’s numbers, I have a bit of budgeting heresy that I’d like to slide by you: don’t bother micro-managing your spending.

FIRE aspirants too often consider the 4% rule to be Holy Writ…graven in stone, as it were, and humped down from the mountaintop by William Bengen.1 Well, dash those tablets against a rock. After you retire you’ll often make withdrawals that on a vAalue-per-dollar basis are impossible to quantify, so you should consider reframing your thinking.

Case in point came late last month when we were already $300 over our monthly budget. My wife, an avid gardener, spent $250 on plants and supplies: blueberries and heirloom tomato seedlings and mulch and a lot of other stuff.

Marital politics aside, there are at least three ways to look at this overage:

  • Gardening expenses helped push us over our $4,200 withdrawal budget. Bad, bad, bad.
  • Gardening reduces our grocery budget in the long run, especially since she focuses on “bang-for-the-buck” produce that’s expensive in the grocery store. Blueberries, for instance, are something like $2.99 a pint at our nearby Publix. Good, good, good.
  • My wife finds gardening to be pleasant work. Spending a couple of afternoons a week with her hands in the dirt across the course of a summer amortizes the costs of doing so to practically nothing. Awesome awesome awesome.

So I tell you all that to tell you this: I don’t budget by category. As long as we hit or come close to our monthly target of $4,200, I couldn’t care less what we spend it on. And even if we go over I don’t much care as long as the spending offset future costs. Bear this idea in mind as you consider to what degree you should micro-manage your finances.

Moving on.


(Note that we use Personal Capital as our financial management and retirement modeling system. It’s free, and we’ll each get a $20 Amazon gift card if you try it.)

Here’s what’s gone down since the last update.

In net worth terms we’re down roughly $114,000 since the beginning of February…which, if you’ve followed this blog for a while, you’ll know that I don’t lose a moment of sleep over. Situation = normal.

The most notable thing we did in April was this: after a bunch of due diligence I made a $10K handshake loan to a very old and highly trustworthy friend so he can hang out his own shingle in a business he’s highly competent in. The terms2 are ridiculously basic: 10% simple interest paid on each anniversary of the loan, with a quarter of the loan repayable annually after the first year. No collateral.

Which might sound like craziness at first pass, yes? But while I hate to mix business with friendship, there aren’t that many people in this world I’d write a $10K check to…and he’s definitely one of them. And the amount in question…

…is where the craziness really sets in. Frankly I don’t consider $10K to be that much money, especially not when compared to the millions I’ve given over to strangers like Warren Buffet and Jeff Bezos and so on.3 I mean, I just said that losing $114K of paper gains on stocks hasn’t cost me a single drop of sweat, so if I only recover, say, $5K of this $10K loan, I’m not terribly worried about that either. My friend’s a housing contractor and if his new business goes belly up I’ll take the balance out in trade.

But everybody gets into these things with good intentions, I guess. We’ll see how it plays out, and as always, I’ll keep up with the transparency so you’ll know exactly which parts of myself I’ve stepped on, and especially how hard.

That’s it, folks…and since it’s the first week of May already, I bid you to get away from your computer and go play outside.

Footnotes

  1. Maybe Charlton Heston should’ve played him in a biopic. I oughtta pitch that to Bill’s agent; despite Heston’s unavailability I’m sure there’s a screenplay in it somewhere, and there’s always bad CGI.
  2. Which of course we’re formalizing in a contract.
  3. Granted that stocks are equity, but when I get in bed with Bezos I’m still putting my fate in the hands of strangers.

Author: ER Dude

Sick of your job? After a thirteen-year career, Early Retirement Dude fled corporate America for good. You can do it too! Visit http://EarlyRetirementDude.com or email EarlyRetirementDude@gmail.com.

10 thoughts

  1. Dude, thanks again for posting your financial situation.

    Good luck with the loan and this transaction could serve as material for future blogs.

    Semper FI,
    Luis

  2. I agree that the 4% should not be the only thing one looks at. Although I think it is great for people starting out and needing a target to shoot for. The details and extra planning become bigger issues as you get closer to your FIRE date.

    The early sequence of returns is a huge factor. Being able to adapt is key and having the nerve to not pull out your investments.

    It great to see people like yourself who fired years ago and have done really well. Looks like your withdrawal rate is close to 2%. If you were following the 4% rule you could withdrawal ~ $8000 monthly, no wonder you don’t lose any sleep with a buffer like that!

    1. >The early sequence of returns is a huge factor.

      YES! If you don’t account for that risk in your modeling, there’s a high chance you’ll be screwed. That means you MUST learn to model your financials in a spreadsheet and get away from the online calculators. Bengen’s analysis had, like, a hundred-year timeframe. None of us are going to be retired for a century, so we can’t assume we’ll have a century of returns to smooth out short-term fluctuations.

      1. Would it make sense if I were mitigate part of the risk by taking a barista/lean fire approach for the first few years?

        I mean, it still beats the heck out of working full-time and you’ll have more say in how you want to make the extra bit of money while you build in that margin of safety for that first decade.

        I could probably do something involving the gig economy a couple of hours a day and pay for all majority of my expenses (if I maintain my frugal lifestyle).

    2. >The early sequence of returns is a huge factor.

      YES! If you don’t account for that risk in your modeling, there’s a high chance you’ll be screwed. That means you MUST learn to model your financials in a spreadsheet and get away from the online calculators. Bengen’s analysis had, like, a hundred-year timeframe. None of us are going to be retired for a century, so we can’t assume we’ll have a century of returns to smooth out short-term fluctuations.

  3. Kudos to your wife. I see the spring kickoff costs in our spending. After a month of spending almost all of our free time on putting our garden into order we overspent our budget with a couple of hundreds also. New lawn consumed ~8 cubic meter of soil, 16kg grass seed, material for the (partially underground) sprinkling system and a metric shitload of manual labor. A row of tomato seedlings are at their place and some more are waiting for planting alongside with pepper and some chili. Yay!
    It is always interesting for me to see how the wise can take a swing like that without the blink of an eye. I understand the background behind that just never been there, never experienced it.
    I have read somewhere that when you give a loan to a family member/friend you have to consider what will happen if you will not get that money back and only give it to him if you are ok with the answer. The text noted that if you give a loan to someone and after that the person stop contacting you and stop showing up at gatherings because the inability to pay back it could be even a money well spent 🙂
    Thanks for sharing this, Dude!

    1. >the wise

      I appreciate that, man, but it’s more a matter of walking the talk than anything else. Function of sticking to the plan. The dot com boom taught me a lot about not sweating the short-term swings.

      >only give it to him if you are ok with the answer

      Yeah, it could very well go badly.

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