Financial Independence

Emergency Fund Update – 90%

Hey guys,

As of this morning, I have hit the 90% mark and it feels amazing!

Though I must say it’s less amazing, however, than hitting the first 10%. I suppose there’s some psychology behind the idea of throwing money on a small pile as opposed to throwing money on a big pile — the former probably feels far more rewarding. Regardless, the bigger number — 100% — is what I’m after and to be this close to it really does feel great. And just to clarify, it has been no easy feat. I am really moving things around to hit that target because I am determined and focused. For those of you paying attention, my last Emergency Fund Update post had me at 80%, so it’s really incredible to me that I’d be able to increment 10% at a time.

To put things in perspective, the amount I’m saving each time is more than I used to make in two months when I was younger. Just insane.

Moving forward, I am trying to see what I can do to make that last stretch and finally hit 100%. The gears are already turning. Because, you see, I intend on hitting that goal before the month is over, but it is not yet immediately clear how I will get there. What inspired me to hustle this month is a few things, but also remembering this important quote:

Don’t save what is left after spending; spend what is left after saving.

— Warren Buffett

Ha! This seems laughably obvious, yet in practice is counterintuitive. I love when things can be put so succinctly, yet have such an impact.

One thing is clear — you can bet when I hit 100%, I will be celebrating that milestone. That marks the end of one journey and the beginning of another. The achievement of my first huge goal and the beginning of actually investing.

You get the idea.

On Being Original

Good Will Hunting is probably one of my top five favorite movies of all time. It’s one of those movies I purchased on iTunes but don’t feel bad about owning because I’ve probably watched it over 50 times by now. This post is about a specific part in the movie where Will has just stepped in to use his eidetic memory to stop a pony-tailed jerk from bullying his friend in front of a lady. If you’ve ever seen the movie, then you’ll know what I’m talking about, but if you haven’t, feel free to read the entire exchange here.

The key part I was thinking about today is this one:

Will: See the sad thing about a guy like you, is in about 50 years you’re gonna start doin’ some thinkin’ on your own and you’re gonna come up with the fact that there are two certainties in life. One, don’t do that. And two, you dropped a hundred and fifty grand on a fuckin’ education you coulda’ got for a dollar fifty in late charges at the Public Library.
Clark: Yeah, but I will have a degree, and you’ll be serving my kids fries at a drive-thru on our way to a skiing trip.
Will: [smiles] Yeah, maybe. But at least I won’t be unoriginal.

This is an excellent scene for a number of reasons. Mainly because our hero has just completely demolished some rich Harvard kid by finishing the sentence he’d memorized and then asking if he was going to continue plagiarizing. Priceless. But this scene isn’t just awesome for that reason, it’s because the playing field has been leveled. On one hand, you’ve got this rich kid who — and I’m just assuming here — has been handed his life on a silver platter. Then, on the other hand, you’ve got Will who was abused as a kid, lives in run-down house — in a low income area — which he pays for by working construction. Normally, there would be no question who was a success and who wasn’t.

But suddenly, perspective gets adjusted when social status is removed from the situation. Sure, Clark is smart, but it’s immediately clear that Will is right. Technically, we could all educate ourselves, more or less, on the information contained in books alone. Assuming, that is, that we could read at the super-human speed Will does while apparently photographically memorizing each page for perfect recall later on. But never mind that.

The absolute kicker is that things boil down to their most basic expectations here when Clark tries to throw his last right hook. “I will have a degree, and you’ll be serving my kids fries at a drive-thru on our way to a skiing trip.” Ah, so stripped of all else, this is how Clark pictures success. He’s with his family on the way to a skiing trip while some poor jerk serves his family fast food. And there you have it, the reason we are all pressured into student loans and mortgages.

In that scenario, no one wants to be the guy asking if you’d like fries with your order.

And yes, I get it, it’s a movie. But this is something we experience on a daily basis in the form of social pressure and why? Well, for the longest time people had a great point. If you didn’t have a degree, you would end up with a much lower-paying job than your degree-holding counterpart. But the funny thing is, people like you and me have done something very interesting and it’s worth some consideration.

Suddenly, you’ve got a part of society living off the interest and they didn’t even need the degree to get there.

Oh, and that part of society could afford to go skiing if they wanted to, or sleep, or write all day, or whatever they may want to do. They could also choose to go back to school and get the degree if they wanted. Or maybe read book after book at the library. The point is that they have choice. Between Will and Clark, neither of them have the kinds of choice I’m talking about. They are limited to the framework in which they’ve placed themselves. My argument is that having choice is better. Being financially independent is the next step in evolution. It’s not a new idea by any stretch, but every day it’s catching on with more people. Each day, there are more of us trying to achieve it. Some of us even succeed.

And at that point, life stretches out before you like a grassy plain. Like the poem by Robert Frost, there are some paths and you could choose the less-traveled path*, but you would do just as well to use that power of choice to tread down your own path. And indeed, when given such freedom, you have little choice but to do so.

* Frost isn’t talking about an actual path that is less-traveled. He’s talking about a traveler who, after learning that both paths are equal and that he will only get to experience one in his lifetime, decides to choose one at random and then later tell people he took the one less-traveled. The dirty liar.

Younger Me – You Are Trapped and No One Else Will Save You

An interesting thought occurred to me today as I was listening to some of my favorite podcasts. If I could send messages to my younger self, what would I possibly send? For anyone who has seen Back to the Future 2, you should know better than to try to take a sports almanac because Biff will inevitably steal it and end up ruining your life in one way or another. So let’s keep things basic. Simple financial advice and basically lots of pleading for him to stop wasting all his money.

Younger me, this series is for you. You and anyone who is near or in their twenties.

Message #1: You Are Trapped and No One Else Will Save You

When I was younger (I’m 32 now, so I mean when I was about 18 – 22), I definitely wanted to be rich but the way I spent money was a clear indication of the opposite. For the longest time, I had absolutely no savings to speak of. I remember realizing that but thinking that I’d just have to get better paying jobs. The problem with better paying jobs is that an uneducated person won’t know to keep from inflating life to meet the new salary. I also remember feeling trapped. This was sort of good in a strange way because it encouraged me to do a ton of reading, test different strategies for alternate sources of income and just generally gave me a fire. And while I did have that in short bursts, inevitably it would burn out.

There was this feeling like the Universe would come along and offer me a way out. After all, my first word was “money” according to my mother, so having it was inevitable. Don’t get me wrong, I am not a superstitious person. I’m not even a little-stitious. But there was a period in my life where I felt like I was destined for greatness. However delusional that might be, I don’t actually think that’s always a bad thing. I guess some delusions can be good. But now let’s talk about the down side.

The problem with the idea that I was destined for greatness is that I wasn’t taking steps to work on my long, slow game. I was all about the quick buck. So on top of telling myself about being trapped, I would also relay to myself the importance of accumulated wealth. If you’re a long-time reader of anything related to financial independence or passive income, you have no doubt seen an infographic depicting the power of investing earlier in your life. Well, that’s something I would have liked to have seen when I was younger. Something like this infographic from MFEA:



Wow, those lines are so spot on it’s frightening. I know for a fact I could have scrimped together $2,000 every year from 22. It wouldn’t have been easy during those first years, but with enough determination, I could have done it. But the point is that I didn’t. And a huge reason for that was that I wouldn’t have known where to even put all that money. So I think I will save the next post for telling younger me what an index stock is and how I could have been sheltering growth from taxes for the last ten years.

It’s not that I beat myself up for not having invested that whole time. Hell, I will probably look back at 32 year-old me when I’m 42 and want to strangle that guy. On the other hand, 32 year-old me is at least putting forth great effort to help older versions get closer to the dream of financial independence. And, of course, this all goes back to delayed gratification.

Younger me, you don’t have to save everything you make. All I ask is that you save $2,000/year until can afford to put more in. Even if it means skipping on eating out a few times a month. Now, of course, you’re wondering where to save that money. And I’ll tell you. In the next post in the Younger Me series.

Reducing Expenses and Curbing Impulses

Curbing Impulses

Today, I found myself about to buy a movie because it was on sale and then caught myself. I could, of course, afford the movie — it was $7.99 on iTunes for the HD version — but I was going to just impulsively buy it so I could watch it immediately. And this wouldn’t be the first time in the last month I’d done so. I’d estimate that in the past few months, I’ve spent nearly $150 on movies alone (to be fair, $75 of that was to purchase the Star Wars HD set on iTunes). It’s clear I have a weakness for entertainment and I do not like to buy hard copies of things.

But still, it’s a weakness. And one that potentially harms my ability to maximize savings and reduce expenses.

It’s clear that if I ever want to live solely off of passive income, this is some behavior that has to be addressed. Luckily, today I took a moment to think it through and come to an understanding with myself that I really didn’t need to make the purchase. In a way, I saved myself an extra $8 for the lost opportunity. A small victory, but a victory nonetheless.

And this is a behavior I’d like to make permanent.

Reducing Expenses

For the past few months, I’ve been actively working on reducing expenses just by cutting out the extra and unnecessary. Of course, there are still some things to cut in order to really get ongoing expenses under control, but up to this point I’ve cut out some great ones. Take Sirius radio, for example. This was costing me $54 every quarter, or $18 per month. We are already paying for Rdio to eliminate the need to buy any music and satisfy our need to find new music, so my wife and I agreed that it was unnecessary to continue paying for something extra.

To further emphasize how much of an addiction I apparently have to entertainment, I was also paying $10/month for a subscription to Stream Nation. Luckily, they merged with another service I was paying for, so that expense sort of disappeared but regardless, I was paying $120/year for the ability to watch not only my movies by my friends’ movies as well. It had to go.

There are also some services I’m using currently that will soon face the chopping block:

  • Mozy – An excellent back-up service that charges $7.99/month ($95.88/year). I have effectively replaced it with CrashPlan, which blows them away for $5.99/month with unlimited online storage. I just need to make sure I’ve absolutely transferred all my data before I pull the trigger.
  • RescueTime – I absolutely love this service for tracking my time spent on the computer, but soon, the company I work for will provide me with an alternative and I can’t justify keeping both. They charge $9/month, which is $108/year I will soon be shaving off.
  • Audible – Another service I absolutely love that I have put on pause for now. I have 5 credits saved up with them that I’d like to let dwindle a bit before I re-activate my account. Still, I love Audible, especially during long commutes. For the program I had, it was $14.95/month ($179.40/year), which is pretty decent in terms of saving over the next year or so.

So already, we’re saving $216 + $120 or $336/year by cutting Sirius and Stream Nation. These additional cuts will result in a total savings of $719.28/year, or around $60/month. That’s less money I’ll have to worry about generating passively in the future.

As I continue reducing expenses, I’ll post more because it is an extremely important factor in achieving financial independence.

Update: I knew I was forgetting something! I came back and added in Audible (and adjusted the math) which is technically paused but it should take me a while to get through those 5 remaining credits. I give it a year. :)

Emergency Fund Update – 80%

Today marks an extremely important milestone for me: my emergency fund is officially 80% filled!

In other words, I have $10k to go before the fund reaches 100%, and I’d really like to get there before the end of the month, so you know what this means.

Extreme Savings Mode: activated.

Once that’s filled, it’s time to start investing. In mutual funds. Bonds. And more recently, Dividend Growth Stocks. Oh my.

I don’t have more to report than that, but I was pretty excited about it.