The year ended! 2018 retired and it’s time to update my chart!
But, first, if you don’t mind, a stroll through history.
History lesson
I was reading through my old journals and I came across some fun stuff I think you’ll like seeing. Or maybe you won’t. I don’t know what you like anymore.
How you handle your money will inevitably change with your lifestyle and your situation. Digging through these old journals, I traced the various ways I handled my money.
Loose leaf
Here is how I kept track of my finances in March 2011. My filing system was a bunch of loose legal pad pages. The small legal pads. The best size.
I listed out my expenses each month, the day it was due, and whether or not it was paid automatically. I also included a little check box to fill in when a bill was paid. It was crazy satisfying to check those boxes.
“s.l.” stands for minimum student loans payment. They were my biggest priority at that point and I stalked them incessantly. The numbers at the bottom indicate how much I paid total toward student loans that month. I always paid more than the minimum, using the entirety of my second monthly paycheck, and whatever extra I calculated I could afford when next month’s bills came through. I looked at this regularly.
Professional notebook
Eventually, I upgraded my system and started using a notebook. Bound pages are better, right? More professional. More legit.
I also used this notebook to keep track of any money-related monthly challenges I tried out, like categorizing my expenses.
And contemplating long-term money goals.
Eventually, I abandoned this notebook because the pages started falling out, defeating the whole purpose. Bound is better, but glue-bound is really no-bound soon enough.
I turned to a slapdash google doc spreadsheet and, of course, my wall chart
My point
So, my point — if I have a point — is that you should track your money somehow, but nobody cares exactly how you do it. There often isn’t a “wrong” way to do something. Specific quirks welcome.
Loose leaf small-size legal pad pages accounting would never be a suggestion in a personal finance book. Hell, it’s not even a suggestion in my book. But it worked well enough.
Okay, enough of the history lesson/plug for my book and on to the update.
Scroll here for chart update
Here’s my unwieldy chart the last time you saw it. It runs through the first four months of April 2018.
Yeah, my precious chart is a monstrosity that demands you squint and guess and zoom, and then, maddeningly, delivers so little. There is a lot of data in the squinty booger up there. Needless data.
Now that I’m only updating my chart once a year and not once every month or once every four months, I can simplify.
New Chart
Here’s the new chart I made that I think is quite wieldy. It consists of my average monthly expenses for that year and my projected passive income based on my net worth at the end of that year.*
You can totally see the crossover point and where I retired. Fun, huh?
The last time I looked closely at anything was my birthday, a few months ago. I wanted to know my net worth at the start of 36. Coincidentally, that day also happened to be the market’s all-time high.
I liked that data point quite a lot, so I included it in the chart for kicks and giggles (the “Turned” data point — it’s supposed to read Turned 36).
And then I wrote that exclamation point-laden introduction and checked back in to calculate the official 2018 data point.
Panic?
Oh, the president of my country is a Russian asset? Carbon emissions are actually increasing? The government is shut down? They haven’t figured out how to stop Brexit, yet? The market is flirting with that damn bear?
Ouch. From my 36th pat on the back to the end of 2018 a few months later, my net worth dropped almost $125,000.
On the bright side, if I take out that Turned 36 data point, my net worth only decreased about $69,000 from December 2017. Woot?
It’s not fun, but it’s inevitable and I’m not going to throw my hands up in the air and panic dance. Even with my extravagant lifestyle — I haven’t told you about my Colombia trip yet — I’m easily living below my means. I know I can stay my retirement course.
And the losses aren’t really losses until I sell anything again and I don’t need to do that for at least six months.
So, I’m choosing optimism. Maybe a new green deal initiative will revitalize and reshape our civilization and we can stop hurtling towards the edge of our petri dish.
And, it’s good news for most of you who actually earn money. You want this downturn so you can scoop up some VTSAX cheaply.
I want to scoop up some cheap VTSAX.
My goal for 2019 is to make some money to take advantage of the sale. How am I going to do that? I have no idea. I just decided it today.
*The formulas I used for this chart:
Average monthly expenses = (Total expenses for the year) / 12
Projected Passive Income = [(Net worth at end of the year) * (0.04 – Educated guess on safe withdrawal rate )] / 12
Yep, stocks are on sale, and they might go on clearance, who knows. You’re so young there’s no need for worry, you’ll see many of these sales in your lifetime 🙂
Oh, that’s a happy thought!
A sale is only a sale if you think the the market is undervalued. The market is never wrong about the price so what makes you think now is a sale? I know you will say that long term market will go up and i agree most likely they will but there’s no guarantee in that, and it certainly does not mean stocks are on sale.
I think you are seriously underestimating the risk of the sequence of returns turning out to be adverse for you as a young retiree. The 4% rule is a very dangerous rule to use especially if you are only in your mid-30s. You have no idea what the returns will be like for stocks and so you do not have much room for error by assuming 4%, given your age. That is why some prefer to use a more conservative rule of 3% or even 2.5%. But that still will not negate the risk of an adverse set of sequence of returns occurring.
Also you are using historical spending to estimate spending going forwards. However what if you need to spend a lump sum on a health issue or a wedding or some other unforeseen expenditure? that will seriously cause a dent in your plan as an early retiree. Especially if you are forced to sell when the market has fallen.
It is good you are trying to find other sources of income and even make some from it. But i fear you as well as many in the FIRE community are being very delusional. I am not trying to be mean, just simply realistic. I have done quite a bit of research myself and am in a very similar position to yourself so i understand a lot about this area. You have done incredibly well for your age but those who continue to work (who are on a lot lower incomes then you were) will have advantage of earning money and having their wages increase over time to set themselves up better financially when they retire later say in their 50s.
@Arpan – I would suggest that your statement “the market is never wrong about the price so what makes you think now is a sale” may be off base. Unless you are not equating price to value in any way, of course. The market is wrong all of the time. It may be efficient in the mid to long term, but over the short term the market is not efficient nor has ever been. This is the standard basis for investing going back to Benjamin Graham, etc.
A couple of points of agreement and disagreement…
“The market is never wrong about the price”. I don’t really know what you mean by this statement, but the price is the price. Investor sentiment drives the price, and there are no certainties in investor sentiment. Unless you believe stocks won’t someday return to their previous highs (I do), then why do you think this isn’t in some ways a “sale”?
“4% Rule is a very dangerous rule to use…”. I think the wording is overly strong, but I do believe the 4% Rule is (more aptly) risky for someone to actually retire (and therefore never make another dime) in their mid 30’s. I agree with you. So yes, I think it’s very wise to have income (even a tiny bit). Expecting a very low cost of living over 60 years is risky as well.
Lump sum spending: As long as you’re well within say 3.5% withdrawal (especially in today’s market lows), a lump sum expense can be easily absorbed without irreversible asset depletion. If lump sums become regular — and therefore fixed — well, that’s a problem.
I see no reason, especially if someone has a good bit of luxury already built into their spending, that someone needs to wait until their 50s to retire. If you have both a high margin in your spending and some supplemental income (i.e. low withdrawal rate), you’re in great shape. Get past the first 10 years, and you’re in really great shape.
I think the best way to temper your deeply felt concerns about the blogger’s finances, Arpan, is to avoid unforeseeingly marrying the blogger in an unforeseen wedding and thereby incurring an unforseseen expense. Not trying to be mean, just realistic!
Did you ever take that self-defense or pistol class? Don’t want you to be paranoid, just safe/always aware and ready….so we can all selfishly continue to enjoy you and your posts.
Always enjoy the posts and progress. Some questions/inputs/thoughts to share:
1. What made you decide to change your initial $750K goal to something higher? Was it just a function of need (to meet or exceed your then-current expenses) or some other parameters?
2. With approx $1.25M in your portfolio today, do you worry that you’re over exposed to a specific asset class (stocks) without holding adequate cash (or real estate, or bonds etc)?
3. How far would the portfolio have to fall , and for how long, before you SERIOUSLY started looking for additional income sources? You’re already implying in your post that you’re looking — did that the last hiccup startled you? — If yes, you’re probably overly exposed to stock market/equities.
4. Have you considered, given mid 30’s age, to only withdraw the dividends, ie, not adhere to a specific withdraw rate but instead only deduct dividends received (around 2.5%) for some period of time given the long bull market?
5. think there’s a type-o n your passive income calculation:
Projected Passive Income = [(Net worth at end of the year) * (0.04 – Educated guess on safe withdrawal rate )] / 12
I think it should be PPI = [(TG’s net worth at end of year) * (.04- TG’s adjustment to get to educated SWR)]/12
6. Question on annual loss numbers. VTSAX lost 5.2% per year. You lost $69K. That implies a portfolio of $.13M; From the peak to year end, VTSAX lost 14%, you lost $125K… but holding VTSAX your losses should have been $175K …that implies you SIGNIFICANTLY beat VTSAX in the 4th quarter. Did you lighten up your stock allocation ? Dividends received ?
Keep the posts coming! Tell us about Columbia too… ! Happy 2019..
What is TG?
1. I didn’t. That’s what I mean when I said I wasn’t aiming high enough. I should have aimed higher.
2. Your numbers are wrong and I’m not really worried about exposure.
3. I don’t know. The last hiccup didn’t startle me. I expected it. My desire to earn money is because it’s tough to pass up cheap VTSAX. I’m a thrifty person and I like when things are cheaper. My solution to the temptation might just be not looking at the price for like six months. I haven’t done anything to try to earn money since I published my post, except writing terrible fiction.
4. I don’t think there’s a wrong way to do it and if that floats your boat, it’s probably fine. Personally, last year, I just took out roughly my allocated 4% amount for the year and draw on that. I’m living way below my means, so I still have a good chunk of my 2018 Life Account I can spend.
5. I like simple, so no typo.
6. Your numbers are wrong. I also took out some money last year to live on, so that’s included in the networth decrease too. *Shrugs* Like I said, I’m nowhere near panic dancing.
If you’re curious about the exact numbers, I retired with 700k. At year 36, I had 925k. Now I have ~$800k. Or at least that’s what I had at the end of 2018. I haven’t looked since. My average monthly expenses in the yearly chart range from $2890/month (living in Sydney) to $1477 a month (slow traveling). I know that’s lower than what most people can probably cut their expenses to, but that’s why I don’t normally include the y-axis numbers in the chart.
I just checked again, out of curiosity, and I have $844k. 44k increase in 20 days. The market is…volatile.
With $800k, she doesn’t really have to worry about market movements. In a worst case event when stocks are down say 50%, she would just have to reduce her spending to the same 4% of the account ($1400/month), until the market recovers some of the losses.
Personally, I always keep 10 to 20% of my retirement portfolio in things like cash, gold, silver. That way you can always take advantage of a market sell off like we had in December 2018. I used some of that “cash” to buy cheap stocks, on Christmas eve.
I recently tried tracking my funds to try and save more for my next adventure, my buddy with the bus wants to drive across Canada to Alaska sometime this summer, then move to southern California. But… I only got as far as naming the spreadsheet since finding out how much of my money goes to weed and bars gives me more anxiety than meeting grizzly bears and wolves or living in a bus.
I read The Simple Path to Wealth and I agree with the philosophy, his combo of total stock market and bond market index funds makes sense. But, 10k is expensive to get into VTSAX. And if i had 10k i’d probably just go on vacation for a long time. If you are planning on buying more VTSAX you should just do it now, if you are waiting for the market to dip down, you are trying to time the market which goes against passive investing. Then again maybe you will get lucky and find an income stream at the same time when the market is at the lowest, who knows.
Unfortunately I don’t ever see myself retiring, I enjoy working in different fields and learning random shit. There are a lot of old grumpy dudes out there with lots of information in their heads, and the only way I can acquire their knowledge is by working with them and having them like me.
Here is a munchies article on taco bells new menu: https://munchies.vice.com/en_us/article/kzvmnm/taco-bell-is-testing-out-its-first-dedicated-vegetarian-menu-in-2019
If you got books my list doesn’t really have anything interesting on it, im reading Jordan Petersons 12 Rules now.
Thanks
Sad news J Bogle passed, probably one of the only people who was accurate in their trading ability and philsophy.
Hello!
Thanks for your Chart update post…and many thanks for sharing your private income/expenses…seeing the numbers makes things more real, and helps quite a bit (I am sure this was something you thought quite a bit about, and you should know it helps many of us).
There was a recent post from MMM, about this subject (“How to Retire Forever on a Fixed Chunk of Money”), and it was clear that he feels that your Net Worth should be the figure to keep in mind relative to the SWR, even if it includes a mix of cash/real estate/etc. But now seeing your post and your formulas, makes it very clear that this is how you see it as well. You made my day, as it turns out I am already about 25% above what I need to cover my expenses with this approach; but, if I quit now, I would pay for my own health insurance, and may want to have a bit more of a cushion, but things are looking up.
In line with my comments above, I would say that one thing that is confusing to me is the use of “Passive income” to refer to the money that is removed from the net worth to pay for expenses. Sure, some of the money comes from “true” passive income in the context of VTSAX (e.g. interest, appreciation, dividends, etc.), but some of it does not (i.e. some VTSAX shares have been sold since VTSAX dividends/appreciation may not be enough to pay for expenses). While this is probably obvious to many people, for me, it was not…and I would therefore recommend explaining this when discussion this chart, and possibly using a different term to describe the money.
Thanks again for being brave and sharing your numbers!
perhaps you could add a lagging indicator in a third color that shows actual passive income. i’m not suggesting you publish this time-series, just calculate it for your own benefit to see how well the prediction fits reality.
The ultimate statistic is net worth, but there’s some uncertainty in equities since you never know what the market will do. My own approach is it assume the Black Swan has already flown in and I give my VTSAX balance a haircut from whatever the market tells me it’s worth. I suppose I could make the haircut-percentage a function of CAPE if I were smarter.
Love that you’re still doing chart updates, and can’t wait to hear about Colombia!
Wow, the mansplaining on this post is really….brazen? Lacking in self-awareness? Oppressively detailed on a subject (your financial situation) that YOU are the foremost expert on?
Oh wait, that’s just THE VERY DEFINITION of mansplaining!
Kudos on continuing to rock the charts 🙂
Thank you for saying exactly what I was thinking
My pleasure. I really try hard to not play the mansplaining card too often but this was just…like whoa.
Ha! I’m playing blog reading catch-up, so a late comment.
Just wanted to say, wrt your old paper charts, my GF does it the EXACT same way. I tried Mansplaining a better way and made her a spreadsheet… She still uses the paper, lol!
There was a satisfaction in updating the paper chart I don’t feel from a spreadsheet. I think it’s breaking out the ruler to draw a straight line that makes it feel official.
Your chart shows scale. Not sure if you meant to do that.
Oops, I didn’t. Thanks for reminding me. I whited it out now. 🙂
Thanks for sharing!
Please tell us when the stock price falls and a good time to buy is…I am a stock market newbie/gringo and have been hesitant to invest, but also financial lingo is hard for me to understand sometimes, but sounds like you know what’s up!.
It’s hard to say! One could say it’s on sale now because it’s lower than its peak. My advice is just to put some money in every paycheck.
The best time to buy stocks is when you are most scared to do it. Christmas Eve was a perfect example, the media was saying only negative things about stocks. Everyone was worried the market was going down another 30%, that is the best time to start doing some buying.
Hi Anita,
Trump is a Russian ? The sky is falling because of climate change ? Brexit is bad even though the Brits chose to not be part of the European sewer ? You got mansplained, oh no the patriarchy.
Seriously, I’d read your stuff with more interest if you didn’t include all the standard left-wing talking points.
I could not care less if you didn’t read my stuff.
Go girl!
Personally I enjoy the “left-wing talking points”!