There’s no good way to describe the first four months of the year. I’ve used “trimester” in the past, but oops, that only means three months. Quadrimester would be more technically accurate, but I find that word a bit pretentious. Google suggests “tertile,” which I would like if it were more widely-used or I had a good turtle joke. I’ll have a think about it some more. Or maybe not. It’s a pretty inconsequential factoid in life and probably not worth the amount of time I’ve already spent on it.
Anywho, I’m updating my charts for the first third of 2016. Here is where I stood at the end of December 2015.
My sister reads most of my rantings before I publish them, editing and making suggestions. I consider her an intelligent gal who gives some great feedback, but she has never really “gotten” my charts. My wonderful charts. My cat that doesn’t interact with anyone except me. I love my charts with the fire of a burning sun, but I can understand your ambivalence.
Personal finance is personal. I love my charts because I see so much of my life looking at it – the year paying off my loans, the spikes for specific trips, the exciting low-expenses months where everything came together, the years in Australia and now, my post-retirement life.
I love my charts because looking at it gives me confidence. I can physically see my expenses line – the red data points – from the last five years and how much I spent to live a life that I liked and now, a life that I love. I also know that I could have reduced those expenses if I needed to. I could have eaten out less. I could have quit drinking. I could have stayed home and traveled less. I could have found a roommate again.
That’s all theoretical, of course, my brain’s safety net and shrug when I notice the market has dropped. In actuality, I don’t think about money at all. Everyone’s enough is different, but my chart reinforces my belief that I have my enough.
This is a squirrel that hangs out on my parent’s deck. He’s eating some nuts my mom left out for him. I named him Morton…I know this picture has nothing to do with anything in this post.
The green line, calculated using my net worth and some educated guesses is my monthly projected passive income. I use a lot of assumptions that may turn out to be horribly wrong. In fact, I’m willing to bet that at least one of my assumptions will end up being wrong.
Here’s the equation:
[(Net Worth)*0.04]/12 = Projected Monthly Passive Income
I assume that my investments will return 7% each year and inflation will be 3% each year. Thus, I can take out 4% and never touch the principal. Divide that number by 12 and I get my monthly projected passive income.
But I must admit that these are all just guesses – educated guesses, but still guesses. If you’ve ever read a prospectus, you know the warnings splattered around the language touting the investment, “past performance is not indicative of future success.” My VTSAX has that sentiment in there at least six times.
“Keep in mind that the Fund’s past performance (before and after taxes) does not indicate how the Fund will perform in the future.”
I love the jovial nature of that warning. I’ve drafted these types of documents at my old job. I’m well aware that the past is not a guarantee for the future, but the past is all we have to go on, so my hypothetical scenarios are based on what has happened in the past. Maybe inflation will go to 2,000% (but I doubt it). Maybe the economy will enter into a decade-long stagnation (but I doubt it). Maybe I’ll need a great deal of money for a physical ailment in the future. I can’t control those outcomes and it makes little sense for me to worry about it now.
My version of the serenity prayer rattles around in my brain quite a bit.
Dear Universe,
Please grant me the serenity to accept the things I can’t change
the courage to change the things I can
and the wisdom to know the difference
I spend a shocking amount of time sorting the difference between things I can control and things I can’t. Here is my list of things that could potentially cause civilization to collapse and which could imperil my retirement plans. When I picture these events though, I’m not sure how much better off I would be if I were actually working.
List of possible future scenarios that could wipe out civilization
- An unfortunate and concurrent series of elections around the world
- Accidental nuclear war
- Climate change devastation unfolding as fast as the movie, “The Day After Tomorrow” predicted
- Alien invasion
Whispering sweet nothings to the raging bull in NY.
Sometimes I have the serenity to accept that I can’t change those possibilities, so I try not wasting too much time getting into a snip about them. I like to remind myself that, perhaps right now my net worth is tied to the market, but if circumstances change (which, of course they will; I just don’t know how yet), I have the power to change the green line too. I can make money again using my brain. I have more control than I sometimes remember.
The market is bullish, I think. I don’t really pay attention to its movement on a day-to-day basis anymore and that has improved my sanity level a noticeable percent. I just checked to update my charts and it’s not in an unhappy place. This might be a moderately okay data point to plot.
So, folks, I’m a third of the way through the year and seven months post any type of paycheck. Since officially retiring, I’ve spent time in Cayman, Jamaica, Brazil, Chile, Argentina, Uruguay, New York, Washington DC and Chicago. I’ve rented out apartments for myself, pet-sat, house-sat, hung out with family, visited friends and bought anything my stupid heart desired. I spent a lot of money eating out, on drinks, on gifts and less than you would think on air travel (miles, baby).
I have not earned a penny from anything I have done and my net worth is almost $7,000 higher than it was the last time I updated my charts in December. I know that’s not incredibly impressive, but you have to admit that it’s not unimpressive either. My money works hard for me while I sleep in. Here is my chart with the latest data point.
Does my projected passive income cover my average monthly expenses? Yes. By a lot. I’ll think about this again in four months. Life is truly amazing.
I love your charts! They are inspiring. I’m in a slightly obsessive chart making, chart honing phase but I find that until your sorted out your charts its hard to measure your progress, and without measuring progress its challenging to realise that perhaps you don’t have to worry about how your travelling at all.
Also, the content is much more engaging without the clip art. The squirrel photo is excellent!
Thanks Andrew! I loved the clipart, but I now realize I’m the only one. I admit defeat. 🙂
Nice update. I like the charts. They are less informative to the average reader because we lack some of the same context that you have when you plot each point- keeping the legend and the detailed explanations close at hand helps the reader to fill in some of that context.
As for 7 months in, I’ve just finished first year and it was a huge learning process for me on many vectors. I am learning what I can control and what I can not. I’ve done well to control many financial aspects …now I need to work on the health side. … Is that controllable ? Maybe to some degree yes. But to some degree it’s like throwing dice in a casino too. Balance is key. I was feeling a little miserly having overspent the budget last month – then read an email this morning from a friend fighting C… Decided I could overspend a little bit again for the right experience … and the world nor my long term goals … would not likely be jeopardized. It’s been all about learning to balance for me. I’m a beginner to early retirement. Still learning …
So now a question that a friend in similar early retired situation asked me for which I couldn’t answer – where does a mid-40s. Successfully retired man who has both time and money for relationship activities meet a nice honest and virtuous woman who has had similar financial and life success, one who has done it too and shares those money values. He isn’t selfish …but…
His complaint is that many females are in pursuit looking only at his meal ticket to financial freedom …real conundrum.
Papadad – I have no idea what to tell your friend about dating. I have the same problem! Well, not worrying about the meal ticket, but just meeting potentials in general right now. Let me know if you think of a solution.
Really, really liking the idea of sanity level as a percentage. Percent sane is so much more realistic than the restrictive sane and insane categories. And, since it can vary over time, can I propose a new chart? Sanity Tertiles?
I enjoyed reading this post. And the confidence you have is admirable and motivational.
How? Can you please give me more information on passive income? My wife and I already invest but we will begin to invest in Vanguard (I’ve read you like them) in July, hopefully. Can I send you an email sometime with some specifics where you can give me some pointers or direct me to material I need to be reading? Thanks!
My passive income is just my Vanguard dividends and price increases!
Love the charts–I also make my own constantly. Also, what Vanguard funds do you invest in?
What a great chart. Looks like you are in doing well in FI ! Living a great life, doinf things you want and increasing net worth with 7K is indeed not nothing… It is super.
What did you tell the bull? To hang around a little longer?
@ Mortimer – VTSAX and a target retirement fund. @Ambertreeleaves – I told the bull that he was special and that I loved him dearly.
Could I send you some specifics (via email), where you could give me some advice on how to invest? Do you do that?
Isaac, my advice would be the same for everyone – VTSAX. It’s a low-cost index fund by Vanguard.
Try using the word ‘quartile’… as in 1st quartile for Jan, Feb, March… shorten it to Q1, Q2 if you’re feeling hip and happening.
Waving from Australia!
Oops. Just re-read your first paragraph. You wanted 4 months…. I blame the fact that it’s early on Saturday morning and I haven’t had any coffee yet.
Would be helpful if you explained what you invest in (percent of equity/fixed income or whatever else) and what return on investment you’re projecting.
so Morton the squirrel gets a nut without putting forth any effort toward an advanced degree, work, apprenticeship, scrimping, saving, toiling, etc? i’m jealous. Manna from Mom
Do you get a dividend payment every month? If not how do you work the in between months?
@Phillip – You can set it up so the dividend payments are sent straight to your bank account.
If you find your income is now starting to regularly exceed your spending, would you not be better reinvesting your dividends rather than taking the income. You would get even faster growth then?
@crackinggems – Yes!
These charts are really helpful and I like seeing them. Congrats again on retirement!
Excellent charts and congrats on your success. We have just started this journey ourselves and I took a similar approach of investments *.04. We have a long way to go to reach your level though. Best of luck and keep the updates coming. They are very motivational.
Just found your site; i love it! your charts are awesome and another great way to look and plan for FI
Howdy! Found your site from Forbes. I am very impressed you saved $700,000 since graduating from law school in 2009 with $100,000 in debt. Do you have a post detailing how you did it on a $160,000 income? After taxes, that’s like $100,000 a year so $700K in 6-7 years is fantastic! I’d love to learn more.
thanks!
Sam
Be careful of the high valuation of the current stock/bond market. I retired 13 years ago at 33 and survived the subprime crisis, I am really lucky…
ThrftyGal,
I really like your thinking, I came to a similar conclusion but had to learn a hard lesson during the 2009 downturn. It was worth the cost. I have a young family so it will take more time, but the just having a good amount of savings( that works for me) really allows me to feel in control of life.
Please keep us all updated on your travels!
-Raj
Hi Anita,
I recently saw your story profiled on Forbes. It was very inspiring. I am in similar shoes as you, though I graduated a couple of years before you.
I think your blog might benefit from a post that discusses how you went from negative to hero ( which was mostly outlined in Forbes articles)
I would be curious to see where life takes you next.
Dividend Growth Investor
What do you think of Vanguard’s “Managed Payout Fund”? It is supposed to give monthly payouts & keep up with inflation – targeting the same 4% withdrawal – the only drawback I see is the expenses seem to be 0.45% vs. the 0.05% of VTSAX – am I looking at this correctly?
https://investor.vanguard.com/mutual-funds/managed-payout/#/
They even have a handy calculator that tells you ‘expected’ monthly payout…
@Ben – Yeah, the expense ratio is a turn off.
Thanks for feedback. Looking at the Vanguard page of the VTSAX, it seems that the dividend is quarterly?
Also, there does not seem to be a % dividend yield for quarterly performance history – is this available somewhere?
If not available anywhere, is it just the distribution amount/share price? This seems to work out around 5% annually for the past 6 quarters shown on this page:
https://personal.vanguard.com/us/funds/snapshot?FundId=0585&FundIntExt=INT#tab=4
If this is correct (around 5% annual average distribution), do you know if they balance the risk so that it targets that amount or higher? or is it completely arbitrary?
I guess I am wondering how this is setup – can you set it up in a way that allows withdrawal of 4% (your target), and reinvest the rest of the dividend (if greater than 4%)?
Any details you can provide on this subject would be appreciated!
Actually, if the distribution is quarterly, and they provided $0.228 per share – then it is a 1.76% yearly dividend…much less than 4%!
@Ben – The 7% is average from dividends and appreciation. 4% is what I can take out to keep up with inflation (theoretically!)
Oh, ok, I assumed that you got 4% from dividends alone…so it sounds like you have setup an account with Vanguard which automatically deposits dividends (quarterly), and then you manually sell shares whenever you see fit to meet your expenses for whatever the dividends do not pay for?
If you could write a post that provides more details on all of this, it would be much appreciated!
I am in a similar situation, albeit with less savings, and have a clear picture of how this works would help to sort of set expectations of this approach (knowing that past performance is no guarantee and all of that…)