Financial Independence Progress Report for June 2017

June is here and welcome to one of the best dividend months of the year! I had both good news and bad news. Good news was all the dividends coming in…bad news was that I could not resist raiding the home down payment fund and putting that money to work for me ūüė¶

Since I have to travel for work next week, I am publishing the report ahead of time….most of the dividends are deposited anyways…so, I am not going to miss anything. So, lets look at the numbers for June 2017.

06/23/2017
Emergency Fund $60K 84.73% 84.97%
College Fund (80K) 53.24% 54.72%
Passive Income (2016 vs 2017) $1741.69(06/2016) $2392.05 (06/2017)
Retirement Fund 74.27% 75.19%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 2.6% 2.6% (site down)
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • June is one of the best months of the year for me (and all dividend investors I am sure!). My passive Income for June 2017 is approximately 37% higher¬†than June 2016.
    • I was weak this month also in that I stole some money from the house down payment fund to fund my passive income streams. The longer I delay the home purchase, the higher seems the risk of me stealing from it. In some ways, it is good…the money is employed in the market and working hard for me….but my flexibility w.r.t. home prices is lost. Lets see….
  • Additional Investments
    • International exposure
      • Just like prior¬†months, I have continued to increase my exposure outside the US market. US stocks seem so¬†overvalued that I just can’t bring myself to add to it.
      • I added some more funds to¬†my existing investments in Emerging markets (via VEIEX) and Euro-Pacific Developed Markets (via VTMGX).
    • Vanguard Intermediate Term Tax Exempt MUNIs (VWITX)
      • Dollar cost averaged my existing investment in VWITX.
        • Last June at this time, ¬†the price was $14.61….now it is $14.21. So, lowered my cost basis.
      • This will add to my monthly federal tax free income stream.
    • With this, I am done with monthly automated investments for this year….ran out of money ūüôā Except for the cash fund in case of a dip.
  • Build a tiny cash fund again
    • I want to have a small cash fund accumulated to take advantage of any market¬†dip(s) in the US market. I am done accumulating….no money left to steal anymore ūüėź
    • Now, the waiting game begins for a significant stock dip. What is a big dip?
      • Take a broad based index like the S&P 500. A well known fund that tracks this is¬†SPDR S&P 500 ETF Trust (NYSEARCA: SPY).
      • Compared to October of 2016, this fund is almost 20% more….for no good reason. The market seems to have gone crazy. To get a nice view that summarizes what I feel, take a listen to this wonderful podcast:¬†http://www.financialsense.com/when-things-get-crazy-dont-get-lazy¬†Valuations have truly gone crazy.
    • So, I will wait to employ my cash fund at least until the cost drops down to 10% on any of my passive income streams. Lets see how disciplined I can be on this one.

Financial Independence Progress Report for May 2017

May is a one of the super-special months in the year. Why? Because it comes before June….one of the two biggest dividend months in the year ūüôā Other than that, May was a dull month. And I have missed my update for April 2017….I do remember writing it…but I guess I forgot to publish it…I found it in my Drafts folder. So, it is going to be a 2-month update for some categories!

Let us look at the numbers for May 2017.

06/02/2017
Emergency Fund $60K 84.135% 84.73%
College Fund (80K) 51.35% 53.24%
Passive Income (2016 vs 2017) $371.51(05/2017) $470.72 (05/2017)
Retirement Fund 71.45% 74.27%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 2.6% 2.6%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • Passive Income for May 2017 ($470.72) is appx 26% higher¬†than May 2016¬†($371.51).
    • I have stolen as much money I can from all my other goals to fund my passive income streams…especially from our home down payment fund. This has resulted in¬†double digit year-over-year gains. But, next year, I will not see this kind of gains…I will enjoy them while they last hey!
  • Additional Investments
    • International exposure
      • Just like prior¬†months, I have continued to increase my exposure outside the US market. Dividend investors are not supposed to look at the stock price…but US stocks seem so¬†overvalued that I just can’t bring myself to add to it.
      • On the other hand, I want my passive income streams to come from many countries all over the world to spread¬†the risk of a single part of the world going through a bad phase.¬†So, I added some more funds to¬†my existing investments in Emerging markets (via VEIEX) and Euro-Pacific Developed Markets (via VTMGX).
  • Build a tiny cash fund again
    • I am accumulating some money in a money market fund. I want to have a small cash fund accumulated to take advantage of any market¬†dip(s) in the US market.
  • Capture gains in my IRA/401K
    • Seeing the insane manner in which the US market stocks are going up, I¬†can’t shake the feeling that we are at the top. I see all the signs of a big drop except the market is going up and up. It is tapering now and I feel that a major dip is quite near.
    • My IRA lost a lot of its value (total return) in the 2008 downturn and I had to wait almost 6 years for it to come back up. I was a financial fool at that time and did not even attempt¬†any corrective actions….I could have moved to preserve some of my gains…but did not know any better.
    • For the upcoming¬†downturn, I do not want to lose the gains in my IRA. So, I cashed out¬†most of the gains¬†accumulated in¬†my IRA over the last few years and have parked them in cash inside my IRA. When the next dip happens, I will put them back to work. Until then, I am okay with losing 2-3% in¬†dividends versus losing 10-20% of the stock price.

2017 Goals and Quarterly Updates

NOTE: Quarterly Numbers Updated on 04/11/2017…

I started my humble journey towards Financial Independence in 2014. But, I really did not have any formal goals for 2014. I just wanted to create multiple passive income streams, protect my family with life insurance, etc. I established what Financial Independence means to me and what the goals were. I accomplished all the implicit goals I had for 2014.

For 2015, I was a little bit more formal about goal setting and set my 2015 goals and updated my progress quarterly (here). In addition, I also tracked my progress via a Monthly Progress Report (here). At the end of year 2015, I reviewed my progress towards FI and I was happy to have reached and/or exceeded most goals I set (here).

For 2016, I achieved most of the goals I set out for myself (here). The two goals where I failed badly are: Keep eating expenses under $200 per month & Estate planning. I will try again this year.

The Financial Independence criterion for me are:

Financial Independence Criterion
Emergency Fund $60k (as of 2017)
College Fund $80k
Passive Income Streams $4000 per month
Retirement Fund $900k
Roof for our Family $750k….HCOL area ūüė¶
Medical Fund $100k
Life Insurance To protect my earning years…..

For 2017, I have thought about the following goals to get me closer to the above financial independence goals.

Financial Goals

  1. Keep scouting for a possible home/multi-family residence/rental real estate
    1. 03/31/2017 ¬† ¬† ¬† ¬†Visited many open houses…single/multi family…prices still crazy
    2. 06/30/2017       
    3. 09/30/2017       
    4. 12/31/2017        
  2. Contribute $15000 towards Home Downpayment Fund
    1. 03/31/2017           $10272/$15000 done           $4728 remaining
    2. 06/30/2017          
    3. 09/30/2017         
    4. 12/31/2017        
  3. Contribute $3600 to 529 College Fund 2 
    1. 03/31/2017 ¬† ¬† ¬† ¬†$305/$3600 done ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† $3295 remaining (behind…)
    2. 06/30/2017       
    3. 09/30/2017       
    4. 12/31/2017    
  4. Contribute $3000 to 529 College Fund 1
    1. 03/31/2017 ¬† ¬† ¬† ¬†$605/$3000 done ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬†$2395 remaining¬†(behind…)
    2. 06/30/2017       
    3. 09/30/2017       
    4. 12/31/2017       
  5. Contribute $16k to Passive Income Streams (stretch goal of $24k) 
    1. 03/31/2017        $10150/$16000                       $5850 remaining ($13850 for stretch)
    2. 06/30/2017       
    3. 09/30/2017        
    4. 12/31/2017
  6. Max out 401k contributions for both me and my wife ($36K total)
    1. 03/31/2017        $10489.19/$36K                     $25510.81 remaining
    2. 06/30/2017        
    3. 09/30/2017        
    4. 12/31/2017        
  7. Keep eating out expenses under $200 pm
    1. 03/31/2017 ¬† ¬†$358.61 ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬†Way above budget…
    2. 06/30/2017   
    3. 09/30/2017   
    4. 12/31/2017   
  8. Start and finish Estate Planning (Will, POD beneficiaries, Caretaker for children, etc)
    1. 03/31/2017  No progress yet      
    2. 06/30/2017  
    3. 09/30/2017  
    4. 12/31/2017  

Personal Goals

Starting this year, I am trying to track some personal goals. Without adding all the details and boring everybody, I will try to keep this simple. I am hoping tracking this in my blog will keep me motivated to reach my goals. Here they are:

  1. Health Body goals (healthy eating, gym visits, popping multi-vitamins, etc)
    1. 03/31/2017 ¬† ¬† ¬† 21.4% success rate ¬† ¬† ¬† ¬† ¬† ¬† ¬† ¬†….nothing but improvement ahead¬†
    2. 06/30/2017  
    3. 09/30/2017  
    4. 12/31/2017  
  2. Simplify Life: Donate unused books once a month
    1. 03/31/2017       00.00% done                                
    2. 06/30/2017  
    3. 09/30/2017  
    4. 12/31/2017  
  3. Simplify Life: Donate unused (old and new) clothes once per quarter
    1. 03/31/2017       100% done 
    2. 06/30/2017  
    3. 09/30/2017  
    4. 12/31/2017  
  4. Simplify Life: Shred all unnecessary documents once a month
    1. 03/31/2017       33.33% done
    2. 06/30/2017  
    3. 09/30/2017  
    4. 12/31/2017  

Uncertainty….some thoughts.

I met a few friends for lunch¬†recently¬†and¬†I was struct by the randomness of events that each one of us¬†was going through…

  • Friend ¬†1 developed kidney stones suddenly and spent a couple of painful hours in Emergency….just came back from¬†a visit.
  • Friend 2¬†developed twitching on one side of the jaw and that was diagnosed to be a neurological condition….
  • Friend 3 experienced an unexpected job loss…we are trying to help out with job leads…
  • Last year and a half, I have experienced¬†unexpected hospitalization, unexpected job loss and an unexpected crisis of confidence….so, I am not that behind ūüôā

Some friends expressed the inability to forecast how the next 5-10 years will look like and how it was creating a lot of stress in their respective lives. Ironically, a similar pattern is what forced me to discover Financial Independence ūüôā

That led me to think about Uncertainty about the future and its effect on Happiness today. I came to the sudden realization that the dramatic popularity of FIRE (Financial Independence and Early Retirement) over the last few years is directly proportional to the level of Uncertainty in the society as a whole. Let me think aloud on this a bit. Read on if you are interested!

What is Uncertainty?

There are many definitions of what Uncertainty is.

  • According to Merriam Webster dictionary, Uncertainty is defined as¬†the quality or state of being uncertain.
  • According to probability theory, any event can have¬†many possible outcomes. If the result of many of these outcomes cannot be predicted ahead of time OR worse yet, the outcomes itself cannot be predicted, then there is supposed to be Uncertainty.
  • I remember reading on a bumper sticker¬†that the oldest emotion of man is fear and the strongest of the fears is the fear of unknown. Not sure who said it, but it seems right to me. When there are unknowns in our life, there is Uncertainty.

Uncertainties in life

Let us take me as an example. There are four main uncertainties that I can think of in my life.

  • Income uncertainty
    • I am in a profession where assuming income certainty does not exist. I got half a day notice to pack my bags and leave in my previous job.
    • Planning for the long term like buying a house, paying for college, saving for retirement, etc requires sustained income for atleast 15-20 years.
  • Health uncertainty
    • All the years spent slogging, both student years and work years, have taken their toll on my body. Another decade of stress and the certainty of¬†failing health is guaranteed!
  • Family Relationships Uncertainty
    • Uncertainty of aged parents’ health on both mine and my wife’s side
    • Uncertainty of a vagabond life (moving to different rental houses) on kids and wife
  • Social Network Uncertainty
    • Social network includes family and friends whom I can count on in case of an emergency.¬†The pressures of the HCOL area economy has driven a couple of close people out of town and out of state….some due to job loss and some due to high cost of living¬†issues.

Priority of Uncertainties

Uncertainties about the future can eat away at the happiness. Not knowing all the outcomes and if the outcomes are known, not knowing the results can cause stress and anxiety. If I were to rank the uncertainties in the order of severity to me, here is what I came up with:

  • Severity High
    • Income Uncertainty
    • Health Uncertainty
  • Severity Medium
    • Family relationships Uncertainty
  • Severity Low
    • Social Network Uncertainty

Importance of Income Certainty

Achieving Income Certainty has an impact on all the other uncertainties. Take the example of a Government employee who has the most certain income situation I can think of. The size of the income is less important than the certainty of it is. With income certainty, I see the following advantages:

  • Improved health
    • When sustained income is assured, then long term decisions like housing, etc can be taken with less stress and anxiety.
    • Health uncertainty is reduced
  • More time to work on getting healthy
    • I have found that more uncertainty leads to working longer and harder to try and make the outcomes more certain…whether it be work OR relationships or something else.
    • More working leads to¬†missing out on gym time,¬†eating unhealthy food, etc
    • Income certainty to me would mean more time work on improving my¬†health.
    • Health uncertainty is reduced
  • More time to spend with family and friends
    • When working longer and harder to overcome income uncertainty, time with family and friends is usually a casualty.¬†When¬†sustained income is assured, spending time with family and friends is is much easier.
    • I once went to a baseball game on a Thursday afternoon as part of a team outing from work and I found the train station overflowing¬†with families. There was no standing room even in the station! I then realized that I had not gone to a baseball game in years and the station was packed on Thursday…a full blown working day!!
    • One person I met on that station many years ago was a post office worker. I saw a lot of¬†happiness and joy in that man and he was the one who taught me the difference between the size of an income (small in his case) and the certainty of that income (high in his case).
    • Family relationships uncertainty and Social network uncertainty is reduced.

Conclusion

In the last two decades of my life, the uncertainty that has grown the most around me in Income Uncertainty. I used to hear about this topic rarely in social events…now it has reached me and my inner most circle of friends and families.¬†I have seen family and friends go through it…and I have seen what devastation it can cause in life…divorces, bankruptcies, three kids and 2 adults in a 2 bedroom apartment, depression, etc etc

With so much income uncertainty, is it any surprise at the wave of populist movements sweeping across the entire developed world? With this background, is it any surprise that FIRE has taken hold in our society and across the world.

Life is meant to be enjoyed. Life with complete certainty is most probably boring. Uncertainties in life are supposed to be indicate exciting new possibilities….new¬†places to visit, new people to meet, new adventures to experience. But, is all of this possible without Income Certainty? Does it take a certain kind of personality to live with Uncertainties but no income certainty?

I am so glad that I discovered FIRE and thanks to the education and support of the FIRE community, I am on my way towards income certainty ūüôā

Financial Independence Progress Report for March 2017

Three¬†months already over in the new year….this year is definitely going faster than last year! Nothing interesting this month. My passive income streams boosted by appx 16% but somehow I feel unsatisfied…not sure why. Maybe the pace of reaching my goals is slow ūüôā Anyways, let us look at the numbers for March¬†2017.

04/01/2017
Emergency Fund $60K 83.00% 84.135%
College Fund (80K) 50.57% 51.35%
Passive Income (2016 vs 2017) $1052.01(03/2016) $1219.83 (03/2017)
Retirement Fund 68.61% 71.45%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 2.6% 2.6%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • Passive Income for Mar¬†2017 ($1219.83) is appx 16% higher¬†than Mar¬†2016¬†($1052.01).
    • I did not add more funds this month since all my investment vehicles are trading at peak values. Waiting for the next dip to invest more. One exception is listed next.
  • Additional Investments
    • International exposure
      • Just like prior¬†months, I have continued to increase my exposure outside the US. Stocks in United States seem too overvalued to my simple mind.¬†I want my passive income streams to come from many countries all over the world to spread¬†the risk of a single part of the world going through a bad phase.
      • So, I have added some more funds to¬†my existing investments in Emerging markets (via VEIEX) and Euro-Pacific Developed Markets (via VTMGX).
  • Build a tiny cash fund again
    • I am accumulating some money in a money market fund. I want to have a small cash fund accumulated to take advantage of any market¬†dip(s).

Financial Independence Progress Report for February 2017

Two months already over in the new year….somehow feels that this year is going faster than last year!

I am still not sure on¬†what should be my yearly goals for 2017. I am carrying forward some goals from last year…college fund, retirement fund, etc. Thanks to valuable comments on a blog post from¬†Vivienne, Baba Joga and AmberTreeLeaves, I am getting close to a decision. By next month, I will decide one way or the other…else quarterly update in in jeopardy ūüôā

Lets look at the numbers for Feb 2017.

02/05/2017
Emergency Fund $60K 100% 83.00%
College Fund (80K) 49.58% 50.57%
Passive Income (2016 vs 2017) $269.65 (02/2016) $408.50 (02/2017)
Retirement Fund 65.07% 68.61%
Roof for our Family($750K) 00.00%
Medical Fund (via HSA) 0.5% 2.6%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Emergency Fund changes
    • It is looking more likely that my next significant goal will be a real estate investment. Before that, I want to seed my passive income streams with as much money as possible to get it as close as possible to my intermediate goal of $1000 pm. My final goal is $4000 pm as documented here.
    • So, to get closer to $1000 pm, one change I made I reduced my emergency fund by appx $10K and pushed the money into a cash fund….to roll this into my passive income streams.
    • I have initiated a per-month contribution towards rebuilding my Emergency fund, but that can happen in the background.
  • Passive Income Stream
    • Passive Income for Feb¬†2017 ($408.50) is appx 51% higher¬†than Feb 2016¬†($269.65).¬†This increase is¬†an¬†expected one.
    • In July of 2016, I welcomed some new members to my mutual fund family.¬†One of the new arrivals was VWITX¬†(Vanguard Intermediate Term National MUNI fund).
    • A good¬†portion of the year-over-year increase in passive income for Feb comes¬†from VWITX. This pattern will repeat the rest of the year as well.
  • Additional Investments
    • International exposure
      • Just like prior¬†months, I have continued to increase my exposure outside the US. Stocks in United States seem too overvalued to my simple mind.
      • And I want my passive income streams to come from many countries all over the world to spread¬†the risk of a single part of the world going through a bad phase.
      • So, I added to¬†my existing investments in Emerging markets (via VEIEX) and Euro-Pacific Developed Markets (via VTMGX).
  • Build a tiny cash fund again
    • I am accumulating some money in a money market fund. I want to have a small cash fund accumulated to take advantage of any market¬†dip(s).

Housing Dilemma….Part 1

As I have mentioned¬†in previous posts in 2017, I am struggling with a Housing Dilemma which has paralyzed me for the last month and a half. It took me some effort to break out of it and write this post. In this post on my Housing Dilemma (Part 1), I will try to detail two big dilemmas I am facing. Your¬†feedback will be very much¬†appreciated. In Part 2 of the post, I will write about my decision…which hopefully will give me some peace and closure.

Looking back…

I discovered Financial Independence…kind of by accident around 2003. My first blog post ever via¬†this blog was on¬†07/21/2014. I re-read that first post¬†again and realized that my goal of FI was 10 years from 07/21/2014 i.e. by 07/21/2024, I should have achieved Financial Independence . To be honest, it was more of a stake-in-the-sand kind of goal rather than a well thought out date based on pure math. But, setting this date has got me far ahead of my expectations from when I started this blog.

My goals when I started this blog…

I went back to read what Financial Independence meant to me. From there, I got the following goals. These early goals were refined a bit more…but they still are¬†the main pillars of my FI strategy.

  1. Emergency Fund for 12 months of expenses
    1. Achieved
  2. Multiple Passive Income Streams that produce $50000 per year for years 50-70
    1. On hindsight, this goal was¬†too aggressive at my current funding level ūüôā
    2. Depending on my housing decision, I may need additional funds OR more time. But I am happy with the current progress (Jan 2017) and will surely continue with this goal!
  3. College Fund for my kid
    1. Will be achieved in the next 8 years
  4. A retirement fund that covers 30 years of expenses for years 70-100
    1. Will be achieved in the next 8 years
  5. A paid off roof for my family
    1. The biggest question mark ūüė¶ More on this later
  6. A $100K medical fund to help fix emergency health issues…not sure about insurance with preexisting health issues.
    1. In 10 years, if I do not dip into the emergency fund, that fund will be folded onto the medical fund. And I will need to add some more money of course.
    2. But, will surely be achieved.
  7. Life Insurance to cover my family.
    1. Note that this is insurance coverage outside of work to protect my family.
    2. Achieved!

Biggest Question Mark

Financial Independence to me meant that the family abode was paid off. Basically, zero debt with a healthy passive income to boot was my dream. I have come to realize that the big decision of buying a family abode is comprised of a few smaller decisions:

  • Location:
    • I live in a HCOL (high cost of living) area…can we move out of here to a LCOL (low cost of living) area?
    • For various reasons, moving¬†is not an option for our family. All our connections (family and close friends) are here and uprooting everything is not practical.
  • Money:
    • The best case scenario for me is a mortgage amount of somewhere between $425K to $525K. I analyzed this in three posts….the final one was this. Links to the other two are within.
    • No mortgage => no tax deduction on the mortgage interest. I have been paying more tax than needed for the past couple years while I was building my passive income engine. Need to correct this.
  • Kid’s Deadline:
    • We have moved 3 times within the last 7 years and that has taken a toll on my kid the most…3 different schools and zero long term friends. My kid¬†enters middle school next year and I want to drop down roots before that…most possibly¬†another school change but hopefully the last one until high school. So, I have appx 1.5 years left to buy a house.
  • Satisfaction:
    • After visiting many open houses and considering the needs and wishes of our family (size, school district, space, layout, etc), I have come to the decision that a “satisfactory” house is a 3B/2B SFH in a reasonably good school district with low crime. This will cost me anywhere between $850K to $950K…depending on how far into suburbia I am willing to move to.¬†Trust me, you will not get a mansion for this…welcome to my HCOL area ūüė¶
    • In waiting to buy a house, our family spent a few vagabond years. We were saving up for the down payment as well as building the passive income streams. Whatever house we buy will be the one we will stay for the next 18 years atleast. So, the criterion of a 3B/2B SFH is not something I can relax.

So, it seems to me that the only criterion I can relax are:

  • Money
  • Kid’s Deadline

Depending on which of the above two criterion I relax, there can be a few different directions I can go in. And here comes the dilemma.

Housing Dilemma 1: Relax Money criterion and stick to Kid’s Deadline

A mortgage size between $425K and $525K will fit into my FI window. Assuming the worst case cost of $950K for a house, I will need a down payment of $325K to even bid for the house. I have some down payment money but accumulating $325K will take me many many more years.

Vivianne¬†suggested one way: sacrifice some retirement funding to build this down payment up.The stock market is at insane levels…so, perhaps not investing in 401K¬†for a year is not a bad idea. Cons are:

  • Even if I stop investing in 401K and stop adding new funds to my passive income streams, I can save a max of $20K to $25K over the next year and a half.
  • 401K funding is the only tax-efficiency move I have going for me….don’t want to lose this…
  • Can I sacrifice¬†my passive income streams? Hmm…..

So, lets say I relaxed my mortgage limit and took a $625K mortgage (analysis)…the jumbo loan limit in my HCOL area. This means my FI plan will need to be extended to 15 years at least. Say, I am agreeable to this as well. So, what is the¬†dilemma then? Buying at the peak.

One of the good articles that explain what I am trying to say is Case-Shiller House Prices Bubble 1.0 vs today.¬†2006-2007 was the largest housing bubble in history. And in my HCOL area, prices today are much much more than 2007 prices. If 2007 bubble was the largest bubble, what does it make the house prices we have today? It is really insane ūüôā

I concur with the above¬†article as I have personal proof of it.¬†Here is one example of a sfh that a friend bought in Dec 2007….

  • Dec 2007: 922K
  • Dec 2009: 699K
  • Dec 2013: 883K
  • Dec 2016: 1200K

Even if I assume that 2016 is Bubble 2.0, if the bubble pops, I cannot expect the prices to go back to 2009 prices…at best, the prices might settle around 883K (2013 prices).

Conclusion:¬†With this background, is this the right time to bug a house? Is this the right time to commit to a huge mortgage that will require mandatory full employment for the next 15-20 years? Even if we deduct mortgage interest deduction of $20-$30k ($625K mortgage @ 4.5%), if the house price drops by 200K, would it be a smart buy? I am not so sure….especially since even refinancing will be ruled out for underwater homes.

Housing Dilemma 2: Relax Kid’s deadline and keep Money¬†

Lets say I will wait for the house prices to fall to a reasonable value…say appx $800-850K for a sfh 3br/2b home in a reasonably good school district with low crime. Let us say that this price reduction will only happen in 2020 i.e. three years from now. I can save money for the home down payment and still stick to the $525K mortgage. But, this means I have to continue to rent and potentially move again for my kid’s middle school i.e. continue the Vagabond family life ūüė¶

I hate to put my family through another temporary move, but lets see what this option of delaying a home purchase till 2020 brings us.

  • I can save enough money for a down payment to let me pick a $525K mortgage i.e. stick to my FI schedule of 10 years….
  • I am not buying at the peak of the market….a peak which is really really historic.¬†I have seen¬†my close friends struggle in the 2008 housing bubble , lose jobs and houses and saw first hand¬†what devastation it can cause for¬†families.

So, what do I lose by postponing my purchase?

  • Obviously, I feel that I am not being a responsible parent and husband by elongating the vagabond life by another three years.
  • I am going to lose the tax benefits of a mortgage…most probably in the highest earning years of my life….i.e. when I could most benefit from a deduction in taxes.
  • House prices may rise up even more….hey, anything is possible ūüôā

I cannot do anything about the first con and the third is not realistic in my opinion. But I can do something about the second. What if I purchased one or more cash-flow positive rentals in a LCOL area? Here are some positives:

  • Use leverage to add one more income stream
  • Diversify my income stream to include rental income along with dividend income
  • Get the mortgage tax deduction

Some negatives are:

  • The rental purchases also will be at the top of the housing market bubble…unless I identify a market that is not so frothy.
  • Remote rental management…lack of time is so prevalent in my life now…so, how does one manage remote properties? Can I identify a rental management agency to help me out? Doable but will take some work.
  • If housing market falls in 2018, I will not have enough money to take advantage of it.

Conclusion: With this background, is this the right time to postpone purchase of family residence and buy a rental property instead? I will be getting the tax benefit and hopefully get the renters to pay off most of the mortgage. And over time, diversify my passive income stream as well. Am I being too selfish in signing up my Kid and wife for few more years of Vagabond life?

Readers

If you have read this far, I truly appreciate it! As I said before, the above two dilemmas have paralyzed me for the last month and a half. If I may ask one favor, do you have any thoughts on how I can solve my dilemma? Which option should I pick: Dilemma 1 OR Dilemma 2? Am I missing any pros/cons in each dilemma? Feel free to share your valuable opinions! Thank you very much!

Financial Independence Progress Report for January 2017

The first month in the new year is done and it is time for the monthly update!

For the first time in the last couple of years, I am struggling with what should be my yearly goals for 2017. There are some basic goals that I will carry over from last year…like college fund, retirement fund, etc. But my struggle is mainly with the housing goal and that in-decision is affecting a couple other goals. But, I think I am getting closure on this issue and will update¬†on the decision soon.

But for now, lets look at the numbers for Jan 2017.

02/05/2017
Emergency Fund $60K 100.0%
College Fund (80K) 47.95% 49.58%
Passive Income (2016 vs 2017) $592.90 (01/2016) $441.42 (01/2017)
Retirement Fund 64.27% 65.07%
Roof for our Family($750K) 00.00%
Medical Fund 00.5%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • Passive Income for Jan¬†2017 (441.42) is appx 30% lower¬†than Jan 2016¬†($592.90).¬†This is a big decrease¬†but an¬†expected one ūüôā
      • I sold all my ESPP shares from a previous employer and moved them into a couple different mutual funds. Basically cashed out for better risk diversification….shares in only one dividend company vs shares in many¬†dividend paying companies.
      • The¬†ESPP shares had an odd dividend payout frequency: Jan, April,¬†July and October. Post the sale, dividends for these months will take a hit this year, but they will be more than compensated by investments with normal¬†cycle of dividends in Mar, June, Sept and December.
  • Additional Investments
    • International exposure
      • Just like prior¬†months, I continued to increase my exposure outside the US. Stocks in United States are way to overvalued and frothy in my opinion. I want my passive income stream to come from many countries all over the world as a good means of diversification.
      • So, I added to¬†my existing investments in an¬†Emerging markets fund (VEIEX) and Developed Markets International fund (VTMGX).
    • Build a tiny cash fund again
      • Since I have stopped investing in US stocks, I am accumulating that money in a money market fund. When the market tanks later this year, I want to have a small cash fund accumulated to take advantage of the dip.
  • Medical Fund
    • I¬†signed up the family for a High Deductible Health Insurance Plan and got access to a Health Savings Account (HSA). $6750 of pre-tax money can be saved in it. HSA money is¬†eligible for all valid medical expenses…free of federal and state taxes.
    • This will begin the accumulation of the Medical Fund. I have accumulated a couple of nasty health issues through all the ups and downs in life…this makes a medical fund an absolute necessity for my later years.
    • My hope is that the family medical expenses are small enough to be able to pay out of pocket now and let the HSA funds compound over the years. Lets see how it goes.

Financial Independence Progress Report for December 2016

Hope everyone had a wonderful holiday season! Here is wishing you a happy and prosperous 2017. May all your dreams and aspirations come true!!

December is a happy month for all dividend investors and so it was for me too! Passive income coming into my account is validation for the FI path and also motivation to continue the FI journey with even more vigor! Lets look at the numbers for Dec 2016.

12/30/2016
Emergency Fund $60K 100.0%
College Fund (80K) 47.95% 47.95%
Passive Income (2015 vs 2016) $1281.58 (12/2015) $1983.06 (12/2016)
Retirement Fund ($900K) 63.44% 64.27%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance policy)

Main Takeaways this month

  • Passive Income Stream
    • Passive Income for December¬†2016 ($1983) is appx 54% higher¬†than December¬†2015¬†($1281.58).¬†This is a big increase and a totally unexpected one.
    • The positive surprise was due to more than expected capital gains distribution from VDIGX and VWELX. I will take it…however they come ūüôā
  • Additional Investments
    • VEIEX(Vanguard Emerging Markets Stock Index Fund))
      • Just like prior¬†months, I continued to increase my exposure outside the US. Stocks in United States are way to overvalued and frothy in my opinion. So, I have continued to increase my exposure to countries outside the US. I want my passive income stream to come from many countries all over the world as a good means of diversification.
      • ¬†This time, I invested in a new fund:¬†an Emerging markets fund called VEIEX. This fund invests in many emerging market countries like¬†Brazil, India, Russia, China, Taiwan and 20 more countries around the world.
      • If you want more details on VEIEX, please get it directly from the horse’s mouth: VEIEX.
  • Passive Income Goal
    • My 2016 goal was¬†to reach $750 pm in passive income by year end.¬†December¬†is done…and my per-month dividend stands at $801.99. Hurrah!
    • 2016¬†had lots of ups and downs…including a phase of unemployment¬†and no salary for a month at least, a¬†nasty health issue and what not. So, achieving this goal and exceeding it by a small amount of $50 makes me very¬†happy.
    • Sometime back, I wrote an article called How much freedom did I buy today?¬†I read that article again today and decided to compute the number of hours of freedom I have bought with $801 of passive income per month.
      • My Passive Income goal is
        • $4000 per month (Why $4000 pm?)
        • $48000 per year
        • $131.5 per day ($48K/365)
      • It is the end of 2016 and my passive income is $801 per month.
        • How much freedom will $801 pm buy me?
          • $801/$131.5 ¬†=> ¬†6.09 days per month => 146 hours per month => 4.7 hrs a day (31 day month)
        • To put this in perspective, here is the amount of freedom¬†$801 of passive income will buy me:
          • 4.7 hours ¬† ¬† ¬†of absolute freedom every day!
          • 6.09 days ¬† ¬† of absolute freedom every month!
          • 73.08 days ¬† ¬†of absolute freedom every year!
          • 2.35 months of absolute freedom every year!
    • For 2017, I will aim for a challenging¬†monthly¬†passive income target of $850 pm. Wish me luck!

Financial Independence Progress Report for October 2016

October was a big down month! There was enough volatility in the month to show some RED in the nos. There were deals to be had in the early part of the month and I thought I made out good….until the later part of the month wiped out the gains ūüôā¬†Let us see what the numbers say for October.

09/03/2016
Emergency Fund $60K 100.0%
College Fund (80K) 45.65% 47.95%
Passive Income (2015 vs 2016) $628.60 (10/2015) $551.80 (10/2016)
Retirement Fund ($900K) 66.36% 63.44%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • College Fund Portfolio Increase (in green above)
    • I got some extra money left over after September and pushed that money ¬†into the college fund. Even though October was a down month, the additional cash offset it.
  • Retirement Fund
    • This portion of my portfolio took a good solid hit in October. I lost almost 3% and the way early November is looking, it is not done going down.
    • Major reason is the increased uncertainty from US elections and the interest rate increase/decrease uncertainty from the FED.
    • I am definitely continuing to invest and am picking up stocks at lower cost i.e. Dollar Cost Averaging full speed ahead! So, all good for now.
  • Passive Income Stream
    • Passive Income for October¬†2016 ($551.80) is appx 14% lower¬†than October¬†2015¬†($628.60).¬†This is a big reduction but an expected one.
      • I sold some stocks from a previous company’s ESPP and spread the money into different funds. These funds do not distribute dividends like my ESPP stocks in Jan, April, July and October. So, all these months will show a reduction in 2016. But, the overall dividends for 2016 will increase and will show up in December of 2016 when all the other funds declare their dividends.
    • Additional Investments
      • VTMGX (Developed markets across Europe, Canada and Australasia)
        • Just like last month, I continued to increase my exposure outside the US using VTMGX.¬†Definitely lowered my cost per share via Dollar Cost Averaging this October.
        • If you want more details on VTMGX, please get it directly from the horse’s mouth: VTMGX.
      • VWELX (Vanguard Wellington Fund)
        • Bought into this fund also quite a bit this month.
        • I already have another balanced fund in my portfolio: VTMFX: 50% stocks and 50% tax-efficient bonds.¬†VWELX is another competitor for my balanced fund dollars…I always have atleast two funds competing in the category…manager diversification and hence risk diversification as well.¬†
        • VWELX is not as tax efficient as VTMFX since the bond portion is not tax-efficient. But I want risk diversification more….
    • My 2016 goal is to reach $750 pm in passive income by end of 2016…October¬†is done…and my per-month dividend¬†is¬†at $603.04 pm.
      • Target Dividend:¬†$9000 pa
      • Current Dividend (year to date):¬†$7321
      • Balance to make up in the next 3 months
        • $9000 – $7321 ¬†=> $1679 over the next 2 months
      • Unless¬†a black-swan event happens in the next two months, it looks like I will make it…hurrah!!
    • I had kept some cash aside to invest in a dip….the temptation to get to $750 in passive income per month was very high in September and I could could not resist and burnt some of it. In October, I used up the rest of the money to buy the dip. October is historically volatile…and it did not disappoint this time…so, the purchases this month will help in the coming year!
    • I anticipate another volatile month in December 2016…post the FED’s decision on interest rates….scrambling to accumulate some cash for that. Lets see…