I use test tubes for my financial experiments. Doesn’t everybody?
The title of this post is misleading and I should probably change it, but I think “Thriftygal’s 2016 Budget” is more click-baity than “Thriftygal’s 2016 Financial Philosophy” or “Thriftygal’s 2016 Experiment with Financial Independence in an Annoying Bear Market.” I haven’t settled on a name for this operation yet. Maybe I’ll just call it Operation Earl and confuse everyone.
Regardless, it definitely will not be Operation 2016 Budget. I hate budgeting. I hate tracking my expenses and putting them into buckets. I can’t account for how I spend cash to save my life and rely on my credit cards to monitor my spending. I have no idea how much I throw away on restaurants or airplanes or socks. I buy whatever I want and just add everything up at the end of the month.
Theoretically, I then verify that my monthly projected passive income for that month is larger than my monthly expenses.
I say theoretically because I’m hesitant to admit to you that I’m a coward. I believe in my philosophy and my investment advice 100%, but I’m not immune to anxiety. On the contrary, anxiety and I are tight. Before I started writing this post, I hadn’t played with my charts for more than two months. Two months! I know I’ve been shoddy when it comes to charting each and every month on this blog publicly, but personally, this was my longest stretch in more than five years. I’m retired now and not receiving any income, so I’m bearing the full brutal fall of the market. I’m itching to buy more VTSAX because stocks are on sale.
Don’t be this guy.
If you want to get “rich,” you have to resist the urge to PANIC! and sell when your portfolio falls. Remember, the saying is “buy low and sell high” and not “buy as it’s rising and panic-sell as it’s dropping.” If you want to get really rich, you have to not panic and you have to buy more when it’s down. Double down and play the long game.
But I can’t buy more because I don’t have a job because I refused to try to time the market and based on that refusal, I gave up my paycheck nearly five months ago to live and travel and write and generally be a bum. Alternate-Universe Thriftygal, who decided to go back to Chicago and work a bit longer, likes to taunt me over her steady net worth. I kick her in the shins when she starts her yapping and gleefully point out that I wake up whenever I want every single day. That often shuts her up. I don’t regret my decision, but it still kills me to roll my empty shopping cart past the orange stickers advertising a fire sale.
So that’s my dilemma. How do I manage my expenses now? I have zero desire to look at my dwindling assets regularly when the market throws a temper tantrum and I have less than zero desire to track my spending even in the best of times. I would feel like a hypocrite if I didn’t practice what I preached — namely, you manage what you measure. And how will I know if I’m okay financially if I ignore it?
Here’s what I’ve come up with so far. I may tweak this approach if it doesn’t work for me or if one of you out there gives me a better idea. For now, I’m going to check in on my financial avatar three times a year when I’m checking my credit and I’ll update my chart with my trimester averages. Here is where I stood at the end of November 2015 – the last time I updated my charts for you to gawk at.
February 2014’s massive spike was when I paid my security deposit for my apartment. I received that entire amount back, so I subtracted it from 2/14 to make the chart a bit prettier. I thought I had done that months ago, but apparently I was wrong.
Here’s where I stood at the end of December 2015.
My expenses, represented by the red line, were reasonable, hanging out in the Caribbean and the east coast of the U.S. of A. My net worth, as represented by the green line, dropped almost $14k to end 2015. Yes, it sucks. I’m just as annoyed as you are and, in reality, considerably more annoyed than you are because it’s my money. But they’re just numbers on a screen right now. I don’t consider it a loss because I have no intention of selling anytime soon. I own shares in civilization and I have to have faith that civilization will continue to improve and this correction is merely another bump in the road like so many we’ve seen before.
I don’t think this bunker would save you either.
Besides, if civilization does end up collapsing, I doubt having crumpled hundreds in an apocalypse bunker will save me.
I’ll update this chart again at the beginning of May 2016 for January through April 2016 trimester’s average. Perhaps the market will have recovered a bit by then. This way too, I’ll get the average of four months of expenses, so that I have some flexibility with my spending. The times when I’m hanging out in one place are way cheaper than the times I’m traipsing around the globe and poking other cultures.
If you want to read specifics on how I tabulate my charts, take a look at this post.
Want to make your own FI chart? Check out this post.
Try Mint or Personal Capital.
Don: I have tried Mint, but I found that a large percentage of the time, it didn’t correctly identify the budget bucket and I’d have to manually change it. I also found that it couldn’t connect to some of my accounts. I’ll check out Personal Capital.
Ppd111: My spending exceeded my passive income, but that was mostly when I was in Sydney and paying an excessive amount for rent. Now, my average monthly expenses from 2011, 2012, 2013 are well under the projected passive income. It would also cover 2014 and 2015 if I stayed in Chicago and paid my Chicago rent.
Kapil: The green line is *calculated* based on my net worth. Thanks for the offer. I’ll have a think about it.
Josh: Thanks for pointing out my typo. Fixed!
Hi!
I early retired at 45.
Don’t get too fixated on the month to month balance. I’ve done that for years and can say that it’s not healthy. Too much mental anguish. Trust the market and get on with living life. Easy to say. Hard to do…but we gotta try.
I really like your trimester approach. Some really really good things in life tend to be tracked in trimesters… So that seems to put a positive bit of karma on the whole tracking mechanism!!
I notice that your spending mostly exceeds the passive income. Although passive income is rising. Are you doing something so the expenses start to consistently fall at or below the passive income or are you spending down your principle ? Just curious…
You’ll need nerves of steel when we do hit a bear. — we will be down between 20 and 60 percent. I quit drinking coffee during the last bear. Bourbon seemed to help a little !!! This latest hiccup was just a bit of a correction in a long and drawn out bull market. Next year based on statistics only, we might see.an ugly bear. That might mean belt tightening to feel more secure but it’s going to be part of the game every 3-4 years for the rest of our days … With our long retirement horizon it’s a matter of us staying calm and getting used to it !!!! Just find a low cost place to hang for a while til the storm clouds pass!
By all means, keep wandering !
Hello Thriftygal. Thanks for the article and for the candid talk about your turmoil with the bearish market. If I recall you have been exercising some geographic arbitrage by living in a low cost of living area. Is that still going on? Is that a strategy you are using in this bearish market as well?
Personally, I am working along with alternate-universe Thiftygal and throwing more money at the firesale. Come the later half of 2018, I plan to pull the plug. I am pleased to be able to prepare myself for FIRE life by listening to your wise advice and experience.
Hope you have a wonderful day. Best wishes, Aperture.
Anxiety about the future is normal and healthy. Worry is borderline, and panic is unhealthy.
One thing that helped me was to pull some of my assets out of “money” and into things. My spouse rolled her eyes, but I found it comforting to stock up on stuff that would get us through no matter what–food, water, tools, books. Yes, survival stuff (though I prefer the newer term “prepper”).
I do not dwell on apocalypse, but it moves my mental needle from worry down toward anxiety, to know that if the financial system loses all my money, I can still eat for a few months.
Hi TG, The green line is not your net worth, it is the income generated by your net worth…big difference. The green line is pretty steady and doesn’t really move if the stock market corrects. (See August 2015 for example) Given your age, your goal should be to keep the red line at or below the green line, as best you can. As long as the green line keeps slowly rising, you should be fine even if the market is moving all over the place. Be mentally prepared for another major bear market (30 to 60%) sometime in the future because it will happen.
I am a CFA and retired wealth manager. If you want some free advice (I’m not selling anything) shoot me an email.
“Theoretically, I then verify that my monthly projected passive income for that month is less than my monthly expenses.”
I hope that isn’t the case 🙂
This post was interesting since this is an issue I am wrestling with myself. I am a bit older than you (53) and have enough saved and invested to maintain my lifestyle – if equity returns in the future are around the long term norm of 7% a year. However, in the fifteen years that I have been investing in equities (since February 2001), my return has been 2.8% per year, after doing everything that the experts recommend – invest in low cost index funds, buy and hold etc. So I find it difficult to fully accept the 7% equity return assumption. While it makes a lot of sense when I look at the evidence, emotionally it is difficult to accept when my personal experience over the last fifteen years has been so different. So, for the moment, I am continuing to work even though I would love to stop after thirty years working!
Hi Thiftygal! First of all, my fiance and I love your blog, it’s so helpful and inspiring. Second, I wanted to ask you if you think it’s a good time to START our VTSAX or if we should wait till the market bottoms out?
Tanya: If I knew when it was going to bottom out, I’d say do it then. But nobody knows! If it were me, I’d just throw it in NOW and continue to live my life. You can’t time the markets. Maybe the bottom already happened a couple of weeks ago. Maybe it will drop another 10%. If you’re in it for the long game, at least you can be receiving dividends in the interim. 🙂
Hi,
Just found this blog: really like your writing skills! Great content here, congrats.
By the way, happy Easter!
Hi Thriftygal,
Heard about you from one of the posts on “The Finance Buff” yesterday, and I must say you are awesome and taking a bold decision of retiring while still in 30s.
Haven’t had a time to read a lot of your posts yet, but just one question – do you only invest in VTSAX or may a large chunk of your assets is in VTSAX?
Keep travelling!
@Kaushal – the vast majority is in VTSAX. 90+%. I couldn’t find the post on The Finance Buff though – can you send me the link?
Two things to remember about the 4% withdraw rate whenever you are struggling in a bear market
1 – this 4% rate is a conservative rate and was based on long-term market returns assuming a worst case scenario. Basically, it assumed you retired right before a the great depression. So, there is cushion there even if it may not feel like it.
2 – It also assumed a very average return. If you are doing anything along the lines of rebalancing funds annually or buying value stocks I would expect you to do better than average long-term and have even more cushion. In case your readers are unfamiliar with these I would recommend to anyone “The Gone Fishing Portfolio” and “The Little Book That Beats The Market” as great books to look at.