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 🙂

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 🙂
    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 😦 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 😦
    • 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 🙂

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 😦

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 🙂

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 🙂
      • 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 🙂
  • 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 🙂 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…

Finding portfolio gaps for a balanced portfolio

Since the end of 2016 is almost here, I wanted to see if there are any gaps in my investment portfolio used to produce passive income. If I did find some gaps, then I want to close them out to have a better balanced portfolio. I did some research and found that there are a few ways to find gaps in your portfolio.

Vanguard Portfolio Watch

If you have a Vanguard account and have all your investments in Vanguard, then Vanguard provides a tool called Vanguard Portfolio Watch. This tool will give you recommendations like the following:

  • OK: Your investments in foreign stocks add diversification to your portfolio.
  • CAUTION: The proportions of large-, mid-, and small-capitalization stocks in your portfolio differ from those of the market.OK: Your portfolio is tax-efficient.
  • CAUTION: Your portfolio emphasizes value stocks which puts you at risk of under-performing the market when growth stocks perform well.
  • CONSIDER: Holding more foreign bonds can potentially increase the level of diversification in your portfolio. Allocating up to 20% to 50% of your bond portfolio to foreign bonds is a reasonable amount to capture the diversification benefits.
  • CAUTION: Sectors indicated with a red arrow vary substantially from the benchmark weightings.

You can use the above analysis results to identify gaps in your portfolio and then invest accordingly. If you want to just see the effect of adding a new investment to your portfolio, you can use a tool called Portfolio Tester….also provided free by Vanguard.

Personal Capital Investment Watch

Personal Capital is a wonderful free tool that anybody can use for tracking their investments, spending and a whole bunch more.

  • The one feature I really like is that it breaks down all the funds in your portfolio into the following categories, JUST by taking the names of the different funds like VDIGX, VTCLX, etc. For example,
    • Large cap, mid cap, small cap split
    • Cash and bonds split
    • Alternatives (real estate, etc)
    • US and International split
  • Personal capital pointed out a weakness in my portfolio diversification w.r.t. lack of investment in Alternative Investments like Real estate, hedge funds, commodities, etc. Hence I started looking at how to add a real estate dimension to my portfolio.
  • I wrote about how I found this portfolio gap here.

This tool has something called Investment watch and that is what I use often to see the composition of my portfolio. Take a peek at it and see if it is useful.

Correlation Analysis

Whether you have none of the previous two ways OR you have it and still want to still find portfolio gaps, Correlation Analysis is a super-wonderful way to do it.

  • Two mutual funds (or stocks or any of the asset classes) are correlated means that the investments behave similar to each other i.e. they both reach the same way in the same market cycles…both go up OR both go down. Lets use the following tool to find correlation co-efficient (Asset Correlation Tool)
    • Example 1:
      • Correlation coefficient of VDIGX and VDAIX is 0.98 (98%)
      • This means that VDIGX and VDAIX behave 98% similarly
    • Example 2:
      • Correlation coefficient of VDIGX and VTMGX (International) is 0.77 (77%)
      • This means that VDIGX and VTMGX behave 77% similarly
  • Two mutual funds are not-correlated means that the investments behave differently in diff ways i.e. both react differently in the same market cycle….if one fund goes up, then one goes down. Lets use the following tool to find correlation co-efficient (Asset Correlation Tool)
    • Example 1:
      • Correlation coefficient of VDIGX and VCADX (CA MUNIs) is -0.13
      • This means that VDIGX and VCADX behave totally opposite to each other i.e. they have negative correlation.

A portfolio is a balanced one if it has assets in it that are correlated in different ways i.e. all the assets should not behave the same way. If we are in a bull market, some assets should go up and some may go down….if we are in a bear market, the same should hold true. If you think this does not make sense, go watch this awesome video titled Asset Allocation: Building a Better Balanced Portfolio The video is a long one but worth the time…and quite entertaining too 🙂

Tool for Correlation Analysis

A wonderful and free tool (no login required) for Correlation Analysis of your portfolio is a tool called Correlation Tracker. I chose the option where I type in all my portfolio values and I get a recommendation of different SPDR funds/etfs that correlate positively (same behavior) and correlate negatively (different behavior).

  • I punched in all my mutual funds that generate passive income for me. They are: VCADX, VWIUX, VTMFX, VWELX, VDIGX, VDAIX, VHDYX and VTMFX.
  • Funds that correlate positively:
    • SPDR Select Sector Fund – Industrial                            XLI        Correlation = 0.882
    • SPDR Select Sector Fund – Consumer Discretionary XLY       Correlation = 0.874
    • SPDR Select Sector Fund – Technology                         XLK        Correlation = 0.805
  • Funds that correlate negatively:
    • SPDR Select Sector Fund – Utilities                                XLU        Correlation = 0.311

The last one (XLU) surprised me. The main reason I own so many different Vanguard funds is to diversify risk by acquiring different asset classes and within each asset class, have multiple managers competing for my money. But, a correlation coefficient of 0.311 for XLU indicates to me that my portfolio has a gap with utilities.

Verifying what the Correlation Tool said ….

To verify the gap of utilities in my portfolio, I tool 4 of the stock Vanguard funds I own (VDIGX, VDAIX, VHDYX, VWELX and VTMGX) and plugged them into Vanguard’s fund compare web page: Vanguard Fund Compare.

Fund          VDIGX     VDAIX      VHDYX      VWELX       VTMGX
Utilities     0.00%     2.81%        8.01%         4.23%         3.10%

The above is a clear clear vindication that the percentage of utility stocks in my passive income portfolio is low. The maximum is 8% but that fund does not have the most money. So, the correlation analysis tool correctly predicted a gap of investment dollars in Utilities in my portfolio.

Conclusion

Granted, utilities is not the most sexy of the stock picks, but it is a rock solid foundation on which passive income streams of many other people are built upon. And more importantly, it balances out my portfolio by adding an asset that correlates less with all my existing mutual funds.

I found one Vanguard utilities mutual fund (VUIAX) but minimum is $100K 🙂 No way that I have that kind of money. But there is a corresponding ETF called VPU. I just invested one share in this ETF….hopefully, I can save some more money and add a few more shares to my portfolio. I am happy to have added an asset that has only 30% correlation (0.311) with my existing funds. Wish me luck for some awesome passive income for years to come via this new asset vehicle called Vanguard Utilities ETF (VPU).

How much freedom did I buy today?

I was having a very tiring day today…a few tiring days actually and I was totally spent when I came home. I checked my blog emails and found some uplifting comments from readers of one of my blog posts. My spirits got recharged due to those comments. Thanks to Tristan (Dividends Down Under), Ambertreeleaves (ambertreeleaves) and Mister SLM. I decided to put my recharged spirits to good use and write a blog post that I have been thinking about sharing for quite a while. This is my way of paying my dues for the good karma that came my way today from the three wonderful people mentioned above.

Back in mid 2014, I defined what Financial Independence means to me in one of my very early blog posts (link). The plan definitely has changed a bit over the last two years. But, I have been executing this plan with all the motivation and money that I can muster

Along the way, I realized one profound motivational idea that I will share via this blog post. I have spreadsheets that track my monthly dividends going all the way back  a few years and in there, I track which of my monthly needs are funded fully by my current passive income.

One day, while updating that, I realized this profound motivational question. Every now and then, I have a rough day at work or at home and sometimes both 🙂 I keep myself motivated by asking myself this question: How much freedom did I buy today?

Here is my answer.

  • My Passive Income goal is
    • $4000 per month (Why $4000 pm?)
    • $48000 per year
    • $131.5 per day ($48K/365)
  • By end of this year, if all goes well, my monthly passive income will be $750 per month. This has come through a lot of sacrifices…both by me and my family.
  • How much freedom will $750 pm buy me?
    • $750/$131.5  =>  5.7 days per month => 136 hours per month => 4.38 hrs a day (31 day month)
  • To put this in perspective, here is the amount of freedom $750 pm of passive income will buy me:
    • 4.38 hours     of absolute freedom every day!
    • 5.7 days         of absolute freedom every month!
    • 68.4 days      of absolute freedom every year!
    • 2 months      of absolute freedom every year!

When I started working many many years ago, saving was defined as money that I did not spend. I was very aimless and had no idea of Financial Independence. Obviously, money vaporized like water. It took a nasty and depressing curve ball in life to start me on a search to something different and I ended up discovering Financial Independence by accident (my first blog post). Thanks to the wonderful world of FIRE bloggers, I found my “something different” i.e. Financial Independence and Early Retirement. Though, it is not going to be as early for me…but better late than never hey !!

The question that keeps me motivated and fills me with enormous drive is the question:

  • How much freedom did I buy today?
    • My answer is 4 hours a day. 
    • What is yours? 

Hope this question motivates you to keep striving for FIRE!

Financial Independence Progress Report for September 2016

September was another slow month. History says that September is more often than not a volatile month. But, I did not see enough volatility and hence no deals to take advantage of. Let us see what the numbers say for September.

09/03/2016
Emergency Fund $60K 100.0%
College Fund (80K) 44.92% 45.65%
Passive Income (2015 vs 2016) $1036.87 (09/2015) $1176.74  (09/2016)
Retirement Fund ($900K) 65.01% 66.36%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio Increases (in green above)
    • As blog readers last month pointed out, many numbers are green this month also! I am thankful for that.
  • Portfolio changes
    • No portfolio changes this month….still adding to the cash fund I set up July. I did spend some of this money on VTMGX and VWELX (Vanguard Wellington) on a small dip in Financials but no major buy as the markets were more or less flat.
  • Passive Income Stream
    • Passive Income for September 2016 ($1176.74) is appx 10% higher that September 2015 ($1036.87). Where is the additional money coming from?
      • A decent portion of the increase is from VTMGX (Vanguard Developed Markets Index Fund) dividend payout.
    • Why VTMGX?
      • I started diversifying my passive income streams across geographies last year and boosted it a lot more this year. The world is much more volatile nowadays and it is hard to predict where the next problem will come from.
      • So, I wanted to spread my portfolio’s risk across many countries of the world. 15% of my passive income investments is outside the US….when I see some good deals, I will increase my exposure outside the US but I will choose a different fund…I want another fund diversify fund risk and fund manager risk as well.
      • But, this will come later. If you want more details on VTMGX, please get it directly from the horse’s mouth: VTMGX.
    • My goal is to reach $750 pm by end of this year…September is done…and my monthly dividends are still at $557 pm.
      • Target Dividend: $9000 pa
      • Current Dividend (year to date): $6770
      • Balance to make up in the next 3 months
        • $9000 – $6770  => $2230 over the next 3 months
      • It all depends  on December being a good month….crossing my fingers!
      • I have 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…..But, I will wait this month for a market dip. October is historically volatile…so, maybe there will be an opportunity.

Financial Independence Progress Report for August 2016

August also has come and gone without much fanfare. Another very slow month…so slow that I felt like doing something just to make it less boring. But, I reminded myself that it is the lull before the storm that I anticipate may start in September (historically a rough month). But, lets look at numbers for August.

09/03/2016
Emergency Fund $60K 100.0%
College Fund (80K) 44.30% 44.92%
Passive Income (2015 vs 2016) $297.54 (08/2015) $391.93  (08/2016)
Retirement Fund ($900K) 64.66% 65.01%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio Increases (in green above)
    • Nothing great to talk about…I still think that the positive gains of this year will not stand the test of time…..insane valuations will always come crashing down.
  • Portfolio changes
    • No portfolio changes this month….still adding to the cash fund I set up last month. If there is a good market dip (saw DOW drops 200-300 pts), I will use the cash to buy the dip.
  • Passive Income Stream
    • Passive Income for August 2016 ($391.93) is higher that August 2015 (297.54). This restarts the streak of 2016 dividends being more than 2015 dividends for the corresponding months. The streak got broken last month because I was in the middle of some portfolio changes….happy to get it back this month 🙂
    • My goal is to reach $750 pm by end of this year…it is already August…and my monthly dividends are appx $433 pm.
      • Target Dividend
        • $9000 pa => $750 pm
      • Current Dividend
        • $5593 pa => $466 pm
      • Balance to make up in the next 5 months
        • $9000 – $5593  => $3407 over the next 4 months
        • I have kept some cash aside to invest in a dip….I could invest it right now and increase my chances of making my target of $750 pm dividend income. But, I have chosen to wait a bit for value by waiting for a market dip and then using the cash. September is another big month for dividends. Based on how September does, I will decide.
        • I think I might squeeze through….keeping fingers crossed.

Financial Independence Progress Report for July 2016

July has come and gone without much fanfare. After June, one of the two biggest months of the year for dividends, July feels disappointing actually. But, let the numbers speak rather than my emotions 🙂

08/01/2016
Emergency Fund ($72K)$60K 100.0%
College Fund (80K) 42.53% 44.30%
Passive Income (2015 vs 2016) $604.87 (07/2015) $579.61  (07/2016)
Retirement Fund ($900K) 61.64% 64.66%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio Increases (in green above)
    • I cannot believe that any of the positive gains will ever stand the test of time. It is the markets going crazy on us with insane valuations. So, I will not waste my time talking about it.
  • Portfolio changes
    • I did some more portfolio changes….hopefully for the last time this year. The main idea was to capture some gains and move them into a couple of new fund options. And also set aside some money for the cash fund.
    • I wrote about this here. My new mutual fund investments are VWELX and VDAIX.
  • Cash Fund
    • I started a cash fund in May since I anticipated a few days of down market towards the end of June…with the interest rate drama, Britain’s exit from Euro decision, etc. I used the fund completely to buy the Brexit dip.
    • I have started a new cash fund in July again…nothing big..two hundred dollars a month max. And some cash to seed the fund came from capturing some of the gains from some of my mutual funds.
  • Passive Income Stream
    • Passive Income for July 2016 ($579.61) was surprisingly lower than that of July 2015 (604.87). I was wondering why this happened…..and then I remembered on seeing the numbers. When I was jobless early this year, I sold some ESPP stock I had and used the money to buy VWITX (National MUNIs). I got to sell some ESPP without any additional taxes….the espp sale replaced some portion of my salary loss. The ESPP stock dividends are slightly more than the National MUNIs but at tax time, the MUNIs will score because the gains are tax free. I got the diversification I wanted but it came as a surprise.
    • My goal is to reach $750 pm by end of this year…it is already July…and my monthly dividends are appx $433 pm.
      • Target Dividend
        • $750 pm => $9000 pa
      • Current Dividend
        • $433 pm => $5196 pa
      • Balance to make up in the next 5 months
        • $9000 – $5196  => $3804 over the next 5 months
        • I think I might squeeze through….inspite of July’s weak dividends.
      • Lets hope for the best!!