KF's simple rules to achieve FI [Financial Independence]

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KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Tue May 01, 2018 5:25 pm

wrongfunds wrote:
Tue May 01, 2018 5:16 pm
You either have the money for paying off the mortgage or have the money for 20X (or whatever is your multiplier) expense. You can't double count that money.

You should modify the 30 year mortgage rule to say "take 30 year mortgage but use 15 year payments" then you could finish paying it off before reaching 70 or 80.
wrongfunds,

<<You either have the money for paying off the mortgage or have the money for 20X (or whatever is your multiplier) expense. You can't double count that money.>>

I don't.

1) My annual expense is 60K with the mortgage. My portfolio is 20X annual expense = 1.2 million.

2) Out of that 1.2 million, 500K is in my taxable account. My mortgage is around 300K. I can pay it off if I want to.

They are independent of each other.

<<You should modify the 30 year mortgage rule to say "take 30 year mortgage but use 15 year payments" then you could finish paying it off before reaching 70 or 80.>>

Why would someone do that when the PITI is less than renting? In my case, the mortgage is 3.49% fixed rate. Why would I want to pay it off when my kids are going to college?

Many folks pay off their mortgage and then take an expensive student loan for their kids. How does that make any sense?

KlangFool
Last edited by KlangFool on Tue May 01, 2018 5:39 pm, edited 1 time in total.

GAAP
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by GAAP » Tue May 01, 2018 5:36 pm

KlangFool wrote:
Tue May 01, 2018 5:25 pm
Many folks pay off their mortgage and then take an expensive student loan for their kids. How does that make any sense?
It doesn't make financial sense, but for some people, it appears to make emotional sense. I'll choose the numbers over the emotions -- and like you, I have a mortgage in my 50s. Right now, the numbers work better that way.

Debt is a tool, it is not inherently bad. There are certainly bad uses for debt, bad debt products, and bad debt management. That does not mean that debt as a tool is always a bad thing.

freebeer
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by freebeer » Tue May 01, 2018 5:44 pm

KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.

Jags4186
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by Jags4186 » Wed May 02, 2018 6:08 am

freebeer wrote:
Tue May 01, 2018 5:44 pm
KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.

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jharkin
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by jharkin » Wed May 02, 2018 6:34 am

Jags4186 wrote:
Wed May 02, 2018 6:08 am
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Not to mention that living on 24k, even with no mortgage, is self imposed poverty in most HCOL areas. And not everybdy hates there jab and cant wait to get out. Some of us enjoy going to work.

The bottom line is that both the MMM " 'retired' at 38 and living on 24k, I make my kids sew their own clothes" and the BH "I'm 65 and I have $6MM saved... do you think I need to work 5 more years to be safe?" situations are extremes. Somewhere in the middle there is a nice happy medium, that's what I'm trying to find.

wrongfunds
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by wrongfunds » Wed May 02, 2018 8:57 am

That was NOT 6M, it was 6.2M + 500K in cash.

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 9:14 am

Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm
KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.

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willthrill81
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 9:33 am

LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm
KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 9:54 am

willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm
KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I finished university at age 33, which makes it hard to retire at that age. Not to mention that our household income is only 40% of theirs and because we don't have enough income to max two 401Ks (or even have access to two 401Ks, or a 457 or a pension), we can't spread a large income over multiple years in order to lower our tax bill, like the rich can, so we pay far more in taxes than them, despite earning far less. I'm not sure in which universe tax breaks for the rich makes sense. I guess I'm less impressed.

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willthrill81
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 10:21 am

LiterallyIronic wrote:
Wed May 02, 2018 9:54 am
willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm


This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I finished university at age 33, which makes it hard to retire at that age. Not to mention that our household income is only 40% of theirs and because we don't have enough income to max two 401Ks (or even have access to two 401Ks, or a 457 or a pension), we can't spread a large income over multiple years in order to lower our tax bill, like the rich can, so we pay far more in taxes than them, despite earning far less. I'm not sure in which universe tax breaks for the rich makes sense. I guess I'm less impressed.
Do you define "rich" to be those making over $100k annually?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

smitcat
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by smitcat » Wed May 02, 2018 10:22 am

willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm
KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
...
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
...
This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I for one do not believe everything I read nor would I want to live by their plan.
Our plan suites our goals ....so if their plan can be adapted for someone else all the better for them.

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willthrill81
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 10:27 am

smitcat wrote:
Wed May 02, 2018 10:22 am
willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am
freebeer wrote:
Tue May 01, 2018 5:44 pm


This is why Mustachian folks laugh at over-conservatism of Bogleheads folks.

Note: not having job security is not the same thing as not having any human capital.
Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I for one do not believe everything I read nor would I want to live by their plan.
That is a common response to hearing of someone who has/had a savings rate above 50%.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

smitcat
Posts: 1870
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by smitcat » Wed May 02, 2018 10:48 am

willthrill81 wrote:
Wed May 02, 2018 10:27 am
smitcat wrote:
Wed May 02, 2018 10:22 am
willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am
Jags4186 wrote:
Wed May 02, 2018 6:08 am


Really? MMM people look to save a minimum of 50% of their gross income which is more than 1 year expenses. They also think retiring is getting $600k, quitting their job, and getting side gigs. All under the watchful eye of someone who says "yes you should be able to live on $600k!"...meanwhile he has 2 full-time jobs (construction + website) and makes $100,000s/yr.

It's easy to choose to live on $24k a year when you have $1,000,000s in the bank and $100,000s rolling in.
Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I for one do not believe everything I read nor would I want to live by their plan.
That is a common response to hearing of someone who has/had a savings rate above 50%.
Our savings rate is right about 22% for expenses, 33% for taxes and 44% saved.

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 11:09 am

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:57 am, edited 1 time in total.

tmcc
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by tmcc » Wed May 02, 2018 11:56 am

KF, I started using the % of expense method to measure my savings rate in my budget. Its a solid method so thanks for that.

I am curious how people look at debt based obligations like a mortgage when factoring in the asset multiplier that one needs for financial independence.

For example, I expect to pay off my house and die here provided global warming doesnt take the eastern seaboard in my lifetime. Accordingly, I would not factor the current debt obligation into expense needs in the future. Since my single biggest expense is housing, the % of adjusted annual expenses I am saving is substantially higher after I adjust for this amount. Accordingly my FI multiplier (20x, 25x, 40x, etc) is an expected "no income situation" where I am drawing or living off of some form of interest and should be net of a mortgage that is not in future expenses -- really just the prin+intr is out. Taxes and insurance are in. I'm tempted to exclude auto expenses but the reality is that I may need to buy a vehicle so some sort of sinking fund or debt may be possible - unknown risk.

Accordingly, .....

Add: Gross cash outflow
Less: total savings (pre/post/whatever.. dont have to go crazy with pre/post tax impacting each number)
Less: mort prin+intr
============
Adjusted Expenses

Adjusted expenses are the basis of the multiplier. I think this is pretty legit and definitely a better barometer than a % of gross or % of net.

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willthrill81
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 12:01 pm

LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
LiterallyIronic wrote:
Wed May 02, 2018 9:54 am
willthrill81 wrote:
Wed May 02, 2018 9:33 am
LiterallyIronic wrote:
Wed May 02, 2018 9:14 am


Funny enough, I think the MMM people are ridiculously frugal, but $600k is my goal, without any side gigs. I mean, not at age 38, but I'd like to have that much by age 50, if possible. Along with a paid off mortgage, of course. Without a mortgage, $24k is more than enough. I can't even think of what I'd buy if I had a budget of $2,000 per month.
Justin at www.rootofgood.com retired at 33 with three small children. In the years since, they only spend about $30k annually, despite traveling globally. Granted, they have no mortgage and live in a fairly LCOL area, but it's still impressive. And while they are certainly frugal, they aren't doing anything that I would view as crazy.
I finished university at age 33, which makes it hard to retire at that age. Not to mention that our household income is only 40% of theirs and because we don't have enough income to max two 401Ks (or even have access to two 401Ks, or a 457 or a pension), we can't spread a large income over multiple years in order to lower our tax bill, like the rich can, so we pay far more in taxes than them, despite earning far less. I'm not sure in which universe tax breaks for the rich makes sense. I guess I'm less impressed.
Do you define "rich" to be those making over $100k annually?
Well, yeah.
So you view wealth in terms of income. I view wealth in terms of assets. I do not view a person making $300k annually but with little net worth to be wealthy, for instance.

Keep in mind that income is very context-specific. The median household income is over $80,000 in many U.S. cities, especially on the coasts. Someone making $100k in Manhattan is not likely to be nearly as well off as someone making $60k in a small Midwestern town.

While it is true that it's easier to max out 401(k)s when making a higher income, that alone won't result in a lower tax bill than someone making significantly less income. A typical family making under the median U.S. household income isn't paying much in Federal income taxes. A married filing jointly couple with two children under 16 and $50k of annual income is estimated by the IRS to pay $0 Federal income tax for 2018.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 12:13 pm

tmcc wrote:
Wed May 02, 2018 11:56 am
KF, I started using the % of expense method to measure my savings rate in my budget. Its a solid method so thanks for that.

I am curious how people look at debt based obligations like a mortgage when factoring in the asset multiplier that one needs for financial independence.

For example, I expect to pay off my house and die here provided global warming doesnt take the eastern seaboard in my lifetime. Accordingly, I would not factor the current debt obligation into expense needs in the future. Since my single biggest expense is housing, the % of adjusted annual expenses I am saving is substantially higher after I adjust for this amount. Accordingly my FI multiplier (20x, 25x, 40x, etc) is an expected "no income situation" where I am drawing or living off of some form of interest and should be net of a mortgage that is not in future expenses -- really just the prin+intr is out. Taxes and insurance are in. I'm tempted to exclude auto expenses but the reality is that I may need to buy a vehicle so some sort of sinking fund or debt may be possible - unknown risk.

Accordingly, .....

Add: Gross cash outflow
Less: total savings (pre/post/whatever.. dont have to go crazy with pre/post tax impacting each number)
Less: mort prin+intr
============
Adjusted Expenses

Adjusted expenses are the basis of the multiplier. I think this is pretty legit and definitely a better barometer than a % of gross or % of net.
tmcc,

<<I am curious how people look at debt based obligations like a mortgage when factoring in the asset multiplier that one needs for financial independence.
>>

Then, you are not looking at FI. You are thinking about retirement. You could FI at any time. You do not need to wait for the house to be paid off. In my system, the number is based on current annual expense. Hence, the whole PITI is counted as an expense. Literally speaking, if a person stopped working now, can the person's portfolio sustain his current annual expense forever?

On the other hand, there are 2 ways to calculate the numbers. We use 25X as the example here. Someone may use a different multiple.

For example, annual expense = 60K with the mortgage. The remaining amount of the loan is 300K. Without the mortgage, the annual expense is 45K.

Method 1:
The FI number = 25 X current annual expense = 25 X 60K = 1.5 million

Method 2:
Use 300K to pay off the housing loan. Then, the FI number = 25 X 45K + 300K = 1.425 million

As a first-order approximation, method 1 is good enough. Someone may use method 2 or better refinement when they are a few years from FI.

KlangFool

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 12:55 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:57 am, edited 1 time in total.

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HomerJ
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by HomerJ » Wed May 02, 2018 1:12 pm

KlangFool wrote:
Fri Apr 20, 2018 2:53 pm
Rule #1
Save 1 year of your current annual expense every year. Then, you could be FI in about 25 years even with 0% real growth.
This is a silly rule.

You are assuming that one's CURRENT annual expense will be the same throughout your life. My expenses at 30 were far different from my expenses at 45, and far different from my expenses at retirement.
Rule #2

Do not overspend on house, car, and college education. At engineer's income level, as long as he/she do not overspend on those large expenses, he/she can save 1 year of annual expense every year.
I agree that one should not overspend on house or car or college. Getting those purchases right can be 80% of the battle.

50% saving rate is an admirable goal, but hardly ever necessary. Paying off the house by retirement, possibly downsizing, and having the kids gone can lower your retirement expenses drastically. Plus you ignore Social Security completely.
The J stands for Jay

HornedToad
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by HornedToad » Wed May 02, 2018 1:15 pm

Honestly, the rules are fine...

They are just similar to using a 2% withdrawal rate for a 30 year retirement because the person is hyper-worried about running out of money.

It's the same idea here, if the main driver is excessive fear of financial insolvency then you can follow this and not need to worry. However, you also miss out on potential opportunities due to that worry. In the same vein as upping the 2% withdrawal rate to 3-3.5% would also be perfectly fine and now you have more money to spend.

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 1:17 pm

LiterallyIronic wrote:
Wed May 02, 2018 12:55 pm
willthrill81 wrote:
Wed May 02, 2018 12:01 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
LiterallyIronic wrote:
Wed May 02, 2018 9:54 am


I finished university at age 33, which makes it hard to retire at that age. Not to mention that our household income is only 40% of theirs and because we don't have enough income to max two 401Ks (or even have access to two 401Ks, or a 457 or a pension), we can't spread a large income over multiple years in order to lower our tax bill, like the rich can, so we pay far more in taxes than them, despite earning far less. I'm not sure in which universe tax breaks for the rich makes sense. I guess I'm less impressed.
Do you define "rich" to be those making over $100k annually?
Well, yeah.
So you view wealth in terms of income. I view wealth in terms of assets. I do not view a person making $300k annually but with little net worth to be wealthy, for instance.

Keep in mind that income is very context-specific. The median household income is over $80,000 in many U.S. cities, especially on the coasts. Someone making $100k in Manhattan is not likely to be nearly as well off as someone making $60k in a small Midwestern town.

While it is true that it's easier to max out 401(k)s when making a higher income, that alone won't result in a lower tax bill than someone making significantly less income. A typical family making under the median U.S. household income isn't paying much in Federal income taxes. A married filing jointly couple with two children under 16 and $50k of annual income is estimated by the IRS to pay $0 Federal income tax for 2018.
I would view a person making $300k annually with little net worth to be rich but irresponsible. That person can buy a new car every month. They're rich. Even if their net worth was zero, they could work for three years and then retire. They're rich.
A MFJ couple with two children under 16 would owe an estimated $51k of federal income tax alone, plus state and possibly local taxes, apart from any deductions. So they could easily have an effective total tax rate of 25%. The idea that lower income families pay "far more in taxes" than those with significantly higher incomes is completely false.

If they were able to save all of the remaining $225k annually, they could save $675k, assuming no returns. Using the '4% rule' that would produce a pre-tax annual income of $27k. That's extremely unlikely to be sufficient for a family accustomed to making more than 10X that much.
LiterallyIronic wrote:
Wed May 02, 2018 12:55 pm
For that $50k couple with two kids paying $0 federal income tax, that makes sense. But you triple their income and add one child and they owe $150? But let's not get political. I'm just saying that for someone with six figure income, I'd expect a 50% savings rate, not find that impressive.
The top 10% to 1% of income earners most recently only had a savings rate of about 12%. Even the top 1% 'only' have a savings rate of about 38%. A 50% savings rate is very uncommon.

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Last edited by willthrill81 on Wed May 02, 2018 3:09 pm, edited 2 times in total.
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by HomerJ » Wed May 02, 2018 2:41 pm

KlangFool wrote:
Wed Apr 25, 2018 4:22 pm
I was in Houston during Houston Oil Bust. I was in Houston during Texas Saving & Loan Crisis. I was in Asia during Asian Currency Crisis. In 2008/2009 recession, not many jobs are safe.

KlangFool
Yikes, where are you living now? I hope it's not anywhere near me :D
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 5:10 pm

LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
Do you define "rich" to be those making over $100k annually?
Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 5:25 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:57 am, edited 1 time in total.

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 5:31 pm

bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
Do you define "rich" to be those making over $100k annually?
Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
bling,

In summary, being rich has little to do with income when a person earned above a certain level. It is about how much that person can save and invest.

KlangFool

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 5:31 pm

LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
Do you define "rich" to be those making over $100k annually?
Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me. They're rich.
It's easy to say that a family with $500k of annual income and a 7% savings rate is irresponsible, but there are those out there that would say that a similar savings rate for those with $50k of annual income is too. Remember that someone making over $32k of annual income is in the top 1% of the world in terms of income.
For almost six years, I’ve been preaching a different brand of financial advice from what you see in the newspapers and magazines. The standard line is that life is hard and expensive, so you should keep your nose to the grindstone, clip coupons, save hard for your kids’ college educations, then tuck any tiny slice of your salary that remains into a 401(k) plan. And pray that nothing goes wrong in the 40 years of career work that it will take to get yourself enough savings to enjoy a brief retirement.

Mr. Money Mustache’s advice? Almost all of that is nonsense: Your current middle-class life is an Exploding Volcano of Wastefulness, and by learning to see the truth in this statement, you will easily be able to cut your expenses in half – leaving you saving half of your income. Or two thirds, or more. Sound like a fantasy? Not to readers of this blog.

What happens when you can save more of your income? As it turns out, spending much less money than you bring in is the way to get rich. The ONLY way.
https://www.mrmoneymustache.com/2013/02 ... blog-post/

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 5:39 pm

LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
Do you define "rich" to be those making over $100k annually?
Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me while getting to go on vacation every four months, go on dates every other week, and have $1,000/month left over for activities for their kids? They're rich.
LiterallyIronic,

Really? At their expense level with student loan and mortgage, they are one job loss away from being wiped out.

<<they still save more than twice as much annually >>

Their savings is around 50K. Their annual expense is 271K. Their saving rate over the annual expense is less than 20%. So, they are financially insecure. And, they will remain this way over the next 10 to 20 years. How long will it take to wipe them out if one or both spouses are unemployed? 1 year? 2 years?

Meanwhile, someone that saves one year of expense every year, they could be unemployed for 2 years or longer and survive.

KlangFool

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 5:48 pm

LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am
willthrill81 wrote:
Wed May 02, 2018 10:21 am
Do you define "rich" to be those making over $100k annually?
Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me while getting to go on vacation every four months, go on dates every other week, and have $1,000/month left over for activities for their kids? They're rich.
sure, they're "rich" -- in that they can indulge in luxury things like high end cars and multiple vacations, but they are not "wealthy". let's try doing the same thing on 100k, which you've also said is rich. if you're living in NYC, that is solidly middle class (maybe even lower-middle).

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 6:23 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:57 am, edited 1 time in total.

KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 6:49 pm

LiterallyIronic wrote:
Wed May 02, 2018 6:23 pm
bling wrote:
Wed May 02, 2018 5:48 pm
LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am


Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me while getting to go on vacation every four months, go on dates every other week, and have $1,000/month left over for activities for their kids? They're rich.
sure, they're "rich" -- in that they can indulge in luxury things like high end cars and multiple vacations, but they are not "wealthy". let's try doing the same thing on 100k, which you've also said is rich. if you're living in NYC, that is solidly middle class (maybe even lower-middle).
Nah, someone with $100k in NYC is still "rich." They're not living in a place where "rich" goes as far, but I'd still call them "rich."
KlangFool wrote:
Wed May 02, 2018 5:39 pm
LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am


Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me while getting to go on vacation every four months, go on dates every other week, and have $1,000/month left over for activities for their kids? They're rich.
LiterallyIronic,

Really? At their expense level with student loan and mortgage, they are one job loss away from being wiped out.
I never said they were smart or doing sound financial practices, just that they're rich. Rich people can get themselves in a bind, just like anybody else. Doesn't mean they're not rich.
LiterallyIronic,

<< Doesn't mean they're not rich.>>

As per my definition, they are not rich. I do not use the income to judge whether someone is rich. I use net worth as a multiple of their annual expense. A person can only be considered as rich if they are financially secured. Folks that can be financially destroyed by short-term unemployment are not rich.

You do not have to accept my definition. I do not have to agree with your definition either.

KlangFool

bling
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 6:52 pm

LiterallyIronic wrote:
Wed May 02, 2018 6:23 pm
bling wrote:
Wed May 02, 2018 5:48 pm
LiterallyIronic wrote:
Wed May 02, 2018 5:25 pm
bling wrote:
Wed May 02, 2018 5:10 pm
LiterallyIronic wrote:
Wed May 02, 2018 11:09 am


Well, yeah.
https://www.financialsamurai.com/scrapi ... truggling/
They waste a ton of money. I mean, their grocery bill alone is our entire annual budget. They're only saving 7.2% of their income, while they go on three vacations every year and spend $800/month just on clothes! Like I said earlier, rich but irresponsible. And yet, despite their ridiculously extravagant budget, they still save more than twice as much annually than my wife and me while getting to go on vacation every four months, go on dates every other week, and have $1,000/month left over for activities for their kids? They're rich.
sure, they're "rich" -- in that they can indulge in luxury things like high end cars and multiple vacations, but they are not "wealthy". let's try doing the same thing on 100k, which you've also said is rich. if you're living in NYC, that is solidly middle class (maybe even lower-middle).
Nah, someone with $100k in NYC is still "rich." They're not living in a place where "rich" goes as far, but I'd still call them "rich."
seriously? after federal/income/city taxes your take home pay is $67k. the median rent for a studio in manhattan is $2300 (= 27.6k yearly). let's use a very low number of $500 for groceries each month = 6k yearly. after food/shelter, you only have $33.4k money left for discretionary spending.

max out your 401k + IRA, and now you only have $9k left.

that is not anywhere close to rich, unless your definition of rich means being able to max out tax-advantaged vehicles. i would not call someone living in a 500 sq ft studio with only 9k discretionary spending "rich".

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 7:02 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:57 am, edited 1 time in total.

KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 7:07 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
KlangFool wrote:
Wed May 02, 2018 6:49 pm
You do not have to accept my definition. I do not have to agree with your definition either.
Indeed.

I would hazard a guess that most people who disagree with my definition are people who make more than $100k.
LiterallyIronic,

I believe that your guess is wrong. You should start your own topic and ask this question. I believe that you will be surprised by the answer.

KlangFool

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 7:11 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm

Yeah, yyou've got to be rich in order to max out retirement accounts. I mean, I'd love for someone to show me how my wife and I can max my 401k and one Roth IRA, let alone two, on my income of $63,500. And that hypothetical person isn't saving $9k per year - they're saving $18.5 in their 401k, $5.5k in their IRA, and $9k after that. Still way more than my wife and me.
LiterallyIronic,

You should start a topic and ask. I believe there are folks with that income and save at that level.

KlangFool

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 7:22 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
Yeah, yyou've got to be rich in order to max out retirement accounts. I mean, I'd love for someone to show me how my wife and I can max my 401k and one Roth IRA, let alone two, on my income of $63,500. And that hypothetical person isn't saving $9k per year - they're saving $18.5 in their 401k, $5.5k in their IRA, and $9k after that. Still way more than my wife and me.
don't know where you live, but assuming a no state income tax state, your take home is 54k. maxing out 401k+IRA= 30k left. let's use the same $500 month for groceries = 24k left. how much is your mortgage/rent? is it $1250/month? there. now you also have 9k left a year. are you also "rich"?

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by willthrill81 » Wed May 02, 2018 7:26 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
I would hazard a guess that most people who disagree with my definition are people who make more than $100k.
I'm not so sure. Most people I know think of wealth in terms of assets, not income. This seems to be the norm.
According to research by American bank Charles Schwab, that benchmark has risen, and you now need at least $2.4 million to be considered wealthy.

In its survey of Americans aged 21 to 75 the bank asked how much people felt you needed to be considered "wealthy," and found that people believed that having $1 million only makes a person "financially comfortable" rather than well-off.
http://www.newsweek.com/millionaires-us ... oor-627893
It’s best to think about the question of who’s rich in terms of accumulated wealth, not annual income.
http://www.slate.com/articles/business/ ... toffs.html
Million, schmillion, some say. It takes a lot more than $1 million to be truly rich today, and to stay rich.
http://www.latimes.com/la-spendsave-story16-story.html

And this gets at what KlangFool has pointed out: how can you be rich if a job loss will leave you with virtually nothing in a matter of months? Is a person who has a $100k income rich, then poor when they're unemployed, then rich again when they become reemployed at the same level, all in less than a year?
However, simply adjusting the cutoff doesn’t address the biggest problem with using income to define wealth: If you have a high income and spend every penny of it, you end up with nothing at all in savings. That means that if you suddenly lose the job that’s providing you with all that income, you become broke overnight, with nothing left to live on. Being in a precarious position like this, where a single change could take you from a comfortable life to the edge of bankruptcy, isn’t most people’s idea of wealth.
https://www.moneycrashers.com/rich-defi ... lifestyle/

While the term is a subjective one, how one views it has very practical implications for how one manages one's finances. If viewed in terms of income, then those with a high enough income to consider themselves rich may think "Now I'm financially set," when they may be in a very precarious position. If viewed in terms of assets, those with enough to be rich are largely insulated from most events that would be impossible for those without any assets to deal with (e.g. long-term unemployment, financial independence, financial emergencies).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 7:43 pm

willthrill81 wrote:
Wed May 02, 2018 7:26 pm
LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
I would hazard a guess that most people who disagree with my definition are people who make more than $100k.
I'm not so sure. Most people I know think of wealth in terms of assets, not income. This seems to be the norm.
According to research by American bank Charles Schwab, that benchmark has risen, and you now need at least $2.4 million to be considered wealthy.

In its survey of Americans aged 21 to 75 the bank asked how much people felt you needed to be considered "wealthy," and found that people believed that having $1 million only makes a person "financially comfortable" rather than well-off.
http://www.newsweek.com/millionaires-us ... oor-627893
It’s best to think about the question of who’s rich in terms of accumulated wealth, not annual income.
http://www.slate.com/articles/business/ ... toffs.html
Million, schmillion, some say. It takes a lot more than $1 million to be truly rich today, and to stay rich.
http://www.latimes.com/la-spendsave-story16-story.html

And this gets at what KlangFool has pointed out: how can you be rich if a job loss will leave you with virtually nothing in a matter of months? Is a person who has a $100k income rich, then poor when they're unemployed, then rich again when they become reemployed at the same level, all in less than a year?
However, simply adjusting the cutoff doesn’t address the biggest problem with using income to define wealth: If you have a high income and spend every penny of it, you end up with nothing at all in savings. That means that if you suddenly lose the job that’s providing you with all that income, you become broke overnight, with nothing left to live on. Being in a precarious position like this, where a single change could take you from a comfortable life to the edge of bankruptcy, isn’t most people’s idea of wealth.
https://www.moneycrashers.com/rich-defi ... lifestyle/

While the term is a subjective one, how one views it has very practical implications for how one manages one's finances. If viewed in terms of income, then those with a high enough income to consider themselves rich may think "Now I'm financially set," when they may be in a very precarious position. If viewed in terms of assets, those with enough to be rich are largely insulated from most events that would be impossible for those without any assets to deal with (e.g. long-term unemployment, financial independence, financial emergencies).
willthrill81,

https://www.theatlantic.com/magazine/ar ... me/476415/
<<The Secret Shame of Middle-Class Americans
Nearly half of Americans would have trouble finding $400 to pay for an emergency. I’m one of them.>>

This is one of the best articles that illustrates the point.

KlangFool

bling
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 7:55 pm

here's another article that's relevant that i found on BH a couple months back: https://shift.newco.co/your-financial-s ... 45e6dc1d2f

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 7:56 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:58 am, edited 1 time in total.

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DaftInvestor
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by DaftInvestor » Wed May 02, 2018 8:05 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:56 pm
willthrill81 wrote:
Wed May 02, 2018 7:26 pm
Is a person who has a $100k income rich, then poor when they're unemployed, then rich again when they become reemployed at the same level, all in less than a year?
I'd say yes.
bling wrote:
Wed May 02, 2018 7:22 pm
LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
Yeah, yyou've got to be rich in order to max out retirement accounts. I mean, I'd love for someone to show me how my wife and I can max my 401k and one Roth IRA, let alone two, on my income of $63,500. And that hypothetical person isn't saving $9k per year - they're saving $18.5 in their 401k, $5.5k in their IRA, and $9k after that. Still way more than my wife and me.
don't know where you live, but assuming a no state income tax state, your take home is 54k. maxing out 401k+IRA= 30k left. let's use the same $500 month for groceries = 24k left. how much is your mortgage/rent? is it $1250/month? there. now you also have 9k left a year. are you also "rich"?
Utah. We have state income tax. It's 5%, I believe. So it'd be something like this: Gross Income of $63,500 - $18,500 401k = $45k. Chop off 20% for taxes and it's now $36k. Two Roth IRAs brings it to $25k. Mortgage is $800 + $250 principal prepayment, bringing it to $12,600. Utilities are about $275/month, so now it's down to $9,300. Groceries are $200/month, so now it's $6,900. After that, it's closer to luxury, like health insurance, gasoline, car insurance, maintenance on house/yard, personal care, and entertainment.

Huh. I need to look at my budget again. Maybe the cutoff for "rich" is lower than I thought.
No need to read all the articles above.
When in doubt - I check good-ole Merriam-Webster Dictionary like I was taught to way back in grammar school (now's its easier because its on the internet). Here's the official definition for "rich":
having abundant possessions and especially material wealth
- Merriam-Webster
So nothing about a $100K income. Its really about "abundant possessions and Material wealth" - aka NetWorth.

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Re: KF's simple rules to achieve FI [Financial Independence]

Post by bling » Wed May 02, 2018 8:24 pm

LiterallyIronic wrote:
Wed May 02, 2018 7:56 pm
bling wrote:
Wed May 02, 2018 7:22 pm
LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
Yeah, yyou've got to be rich in order to max out retirement accounts. I mean, I'd love for someone to show me how my wife and I can max my 401k and one Roth IRA, let alone two, on my income of $63,500. And that hypothetical person isn't saving $9k per year - they're saving $18.5 in their 401k, $5.5k in their IRA, and $9k after that. Still way more than my wife and me.
don't know where you live, but assuming a no state income tax state, your take home is 54k. maxing out 401k+IRA= 30k left. let's use the same $500 month for groceries = 24k left. how much is your mortgage/rent? is it $1250/month? there. now you also have 9k left a year. are you also "rich"?
Utah. We have state income tax. It's 5%, I believe. So it'd be something like this: Gross Income of $63,500 - $18,500 401k = $45k. Chop off 20% for taxes and it's now $36k. Two Roth IRAs brings it to $25k. Mortgage is $800 + $250 principal prepayment, bringing it to $12,600. Utilities are about $275/month, so now it's down to $9,300. Groceries are $200/month, so now it's $6,900. After that, it's closer to luxury, like health insurance, gasoline, car insurance, maintenance on house/yard, personal care, and entertainment.

Huh. I need to look at my budget again. Maybe the cutoff for "rich" is lower than I thought.
so, your budget leaves you with $6900 a year for discretionary spending. the hypothetical NYC dweller had $9000 (and did not include any utilities). $2100 a year is the difference between rich and not rich?

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corn18
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by corn18 » Wed May 02, 2018 8:42 pm

Not too many years ago (6) I made $380k and had had a net worth of $0. Lots of toys, expensive vacations, a horse and unbridled spending. I did max our retirement accounts ($17,000). I was not rich. If I lost my job, we would be toast. Lots of debt and very little savings.

Now I make $500k/ year and spend $130k / year. The rest goes to taxes and savings. Net worth is north of $1M with $1M of it in savings. I think I am getting rich, but not there yet. If I lost my job, I think I might actually be happy about it.

I agree with KF.

LiterallyIronic
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by LiterallyIronic » Wed May 02, 2018 10:16 pm

[Off-topic; redacted]
Last edited by LiterallyIronic on Thu May 03, 2018 8:58 am, edited 1 time in total.

golfCaddy
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by golfCaddy » Wed May 02, 2018 10:21 pm

This is getting ridiculous. If people want a semantic debate on to define the word rich, start a new thread.

KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 10:35 pm

golfCaddy wrote:
Wed May 02, 2018 10:21 pm
This is getting ridiculous. If people want a semantic debate on to define the word rich, start a new thread.
golfCaddy,

I believe that it is a useful debate. Many folks mistakenly believe that higher income folks are rich. That is a very common myth.

KlangFool

golfCaddy
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by golfCaddy » Wed May 02, 2018 11:14 pm

KlangFool wrote:
Wed May 02, 2018 10:35 pm
golfCaddy wrote:
Wed May 02, 2018 10:21 pm
This is getting ridiculous. If people want a semantic debate on to define the word rich, start a new thread.
golfCaddy,

I believe that it is a useful debate. Many folks mistakenly believe that higher income folks are rich. That is a very common myth.

KlangFool
Except high income people are rich, if rich is defined as having a high income, which is why semantic debates tend to be pointless and circular.

KlangFool
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by KlangFool » Wed May 02, 2018 11:19 pm

golfCaddy wrote:
Wed May 02, 2018 11:14 pm
KlangFool wrote:
Wed May 02, 2018 10:35 pm
golfCaddy wrote:
Wed May 02, 2018 10:21 pm
This is getting ridiculous. If people want a semantic debate on to define the word rich, start a new thread.
golfCaddy,

I believe that it is a useful debate. Many folks mistakenly believe that higher income folks are rich. That is a very common myth.

KlangFool
Except high income people are rich, if rich is defined as having a high income, which is why semantic debates tend to be pointless and circular.
golfCaddy,

<<Except high income people are rich, if rich is defined as having a high income, >>

It is not a commonly held belief in this forum. And, that comes as a surprise to some folks. From that standpoint, it is useful to debate this.

KlangFool

smitcat
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by smitcat » Thu May 03, 2018 7:26 am

KlangFool wrote:
Wed May 02, 2018 11:19 pm
golfCaddy wrote:
Wed May 02, 2018 11:14 pm
KlangFool wrote:
Wed May 02, 2018 10:35 pm
golfCaddy wrote:
Wed May 02, 2018 10:21 pm
This is getting ridiculous. If people want a semantic debate on to define the word rich, start a new thread.
golfCaddy,

I believe that it is a useful debate. Many folks mistakenly believe that higher income folks are rich. That is a very common myth.

KlangFool
Except high income people are rich, if rich is defined as having a high income, which is why semantic debates tend to be pointless and circular.
golfCaddy,

<<Except high income people are rich, if rich is defined as having a high income, >>

It is not a commonly held belief in this forum. And, that comes as a surprise to some folks. From that standpoint, it is useful to debate this.

KlangFool
Agreed - income level has almost nothing to do with wealth or being "rich". Many folks with high income have negative worth and its increasing over time - has nothing to do with building wealth.

smitcat
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by smitcat » Thu May 03, 2018 7:29 am

LiterallyIronic wrote:
Wed May 02, 2018 7:56 pm
willthrill81 wrote:
Wed May 02, 2018 7:26 pm
Is a person who has a $100k income rich, then poor when they're unemployed, then rich again when they become reemployed at the same level, all in less than a year?
I'd say yes.
bling wrote:
Wed May 02, 2018 7:22 pm
LiterallyIronic wrote:
Wed May 02, 2018 7:02 pm
Yeah, yyou've got to be rich in order to max out retirement accounts. I mean, I'd love for someone to show me how my wife and I can max my 401k and one Roth IRA, let alone two, on my income of $63,500. And that hypothetical person isn't saving $9k per year - they're saving $18.5 in their 401k, $5.5k in their IRA, and $9k after that. Still way more than my wife and me.
don't know where you live, but assuming a no state income tax state, your take home is 54k. maxing out 401k+IRA= 30k left. let's use the same $500 month for groceries = 24k left. how much is your mortgage/rent? is it $1250/month? there. now you also have 9k left a year. are you also "rich"?
Utah. We have state income tax. It's 5%, I believe. So it'd be something like this: Gross Income of $63,500 - $18,500 401k = $45k. Chop off 20% for taxes and it's now $36k. Two Roth IRAs brings it to $25k. Mortgage is $800 + $250 principal prepayment, bringing it to $12,600. Utilities are about $275/month, so now it's down to $9,300. Groceries are $200/month, so now it's $6,900. After that, it's closer to luxury, like health insurance, gasoline, car insurance, maintenance on house/yard, personal care, and entertainment.

Huh. I need to look at my budget again. Maybe the cutoff for "rich" is lower than I thought.
FWIW - our income was very similar to that when we were younger. What we did was work at methods to increase income over time as well as look at the budgets we kept.

Jags4186
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Re: KF's simple rules to achieve FI [Financial Independence]

Post by Jags4186 » Thu May 03, 2018 7:52 am

1) A hypothetical Manhattan resident making $100k has an upper middle class income--period. Certainly they aren't rich though (see below). Perhaps in their zip code they are not in that top 25% in income, but their zip code amounts to about 10 city blocks. They've simply chosen to spend most of there money. There's nothing stopping them from living in New Jersey or Connecticut or New York State, paying $1500 rent--less if they want to live with a roommate, buying a monthly train or ferry pass, and commuting.

2) Accumulated assets makes you wealthy. It's like that old Chris Rock skit--Shaq is rich, the owner who signs Shaq's check is wealthy. (although I'm sure Shaq is quite wealthy by our standards...)

3) To loop this all back to the MMM/RootofGood/etc. conversation, there's a huge difference between living on $24k or $30k/yr while making $100,000s of income or having $1,000,000s in the bank and living on $24k/yr when you only make $24k/yr. One is a choice, one is a necessity. Choices are much easier to live with than non negotiable situations--especially when the choice can be reversed. A $10,000 problem that pops up for MMM means nothing to him (I also doubt he'd report it). A $10,000 problem for LiterallyIronic's family would be an incredibly stressful event.

LiterallyIronic, unless you intend to FIRE, which to be honest is unlikely given your current situation, you don't need to save $24,000/yr. With $63,500 in income you and your wife will receive a proportionally higher amount from social security than someone making $200k/yr. Therefore you need to save less for retirement to maintain your standard of living vs a high income family.

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