Live now vs Save for FIRE….

I read a wonderful article today written by my fellow Belgian FI blogger AmberTreeLeaves. The article of his title was “endless doubt onĀ FIRE“. I was behind on my FI blogger reads and read it a week too late. But, the article was very thought provoking and I would really recommend a read.

Since there were already quite a few posts, commenting there was probably not going to be too helpful…hence this new post šŸ™‚ Hope AmberTreeLeaves does not mind stealing an idea for a post from his blog!

That post by AmberTreeLeaves raised a conflict that I often had and continue to have within myself. OneĀ sentence from the post captures this conflict very well: The conflict is mainly between travel /live now andĀ prepare FIRE.

I go through the same conflict in my mind….not just with travel, but also things like buying a car, etc. My parents sacrificed a lot in their presentĀ and postponed all their enjoyment to the future. And it did not end well. I went through someĀ years where I did the opposite…living for the now..I guess I was running away from my parent’s philosophy. And when I discovered Financial Independence, I swung the other way….live for the future only and my family was none to happy about it šŸ™‚

But, I have now come to a fairĀ medium. I have come up with a decision framework that helps me rationalize live nowĀ OR live for the futureĀ vs the benefit I am getting. This has helped making sacrifices easier.Ā Let me state two example cases.

  1. Lets assume a family vacation costs $5000 on average and hypothetically our family’s post tax take home salary is $60000. My requirement is that I want to have one vacation each for the next 10 years before my kids head out to college. So, I need roughly $50000 to fund all the vacations. $50000 adds one additional year to my family’s expected FI target. Considering that we will never get that many chances to spend time together as a family after kids head out to college, this addition is worth it to me.
  2. Now consider purchasing a new luxury car like some of my friends have. The car costs $80000 and after financing and maintenance costs, it can rise up to $90000 at least…yes, I could not believe it šŸ™‚ With the same post-tax family salary of $50000 per year, it would add almost 2 years to my expected FI target. For me, getting freedom 2 years earlier is more important than driving a luxury car. Don’t get me wrong…I like the cars…I have sat in them and I think they are awesome….but not awesome enough compared to achieving freedom 2 years earlier…for me.

I am trying to apply this framework for every major decision…it had helped meĀ rationalize family vacations and buying a new car. Next is applying this for buying a home.Ā I am curious how do others deal with this conflict. Lemme know your thoughts please.

And once again, thanks to AmberTreeLeaves for a wonderful and thought provoking post. It took me back in time to a period when I learnt some important lessons.

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Financial Independence Progress Report for April 2016

April is a slow month for dividends in my portfolio. But, after a couple months of no paychecks, seeing regular paychecks in April was such a joy! In celebration of that, I pumped a couple hundred dollars into making sure that future paychecks via dividends are a certainty šŸ™‚

Lets look at the numbers now.

04/30/2016
Emergency Fund ($72K) 100.0% 100.0%
College Fund (80K) 39.33% 41.25%
Passive Income Streams ($4000 pm) $544.13 pm (04/2015)Ā $509.15 pm (4/2016)
Retirement Fund ($900K) 57.96%Ā 61.08%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Portfolio changes continues this month….
    • I wrote about my Capital GainsĀ gut check here. As part of that exercise, I divested all my holdings in VTCLX (Vanguard Tax Managed Capital Appreciation) and VTMSX (Vanguard Tax Managed Small Cap).
  • Additions to my new investment vehicle…
    • Last month, I initiated a position inĀ Vanguard Intermediate-Term Tax-Exempt Fund Investor Shares (VWITX). I wrote about it in my March Progress Report.
    • I took all the money from the sale of VTCLX and VTMSX and moved them into VWITX.
    • The gains are Federal Tax free and AMT (Alternative Minimum Tax) free as well.Ā I would still have to pay CA state tax for VWITX though.
  • Dollar Cost Averaging
    • Did not have cash to dollar cost average (DCA) my funds this month…but I did boost my investments to dollar cost average VTMGX (Vanguard Developed Markets Index Fund….my non-USĀ exposure mutual fund). I want to have some of my passive income streams to not come from US companies. VTMGX diversifies my passive income streams to include companies from Greater Europe, Greater Asia and Canada.
  • Passive Income Stream
    • Passive income for AprilĀ 2016 ($1016.87) brokeĀ the positive trend of current year month winning over previous year’s month as AprilĀ 2015Ā ($544.13). Hmm….
      • ….this was expected as myĀ portfolio changes led to a some days where my money was not working for me…a gap of a couple days between closing of accounts and moving them into new accounts.
    • I compute Passive Income per month as (total passive income in this year) / number of months completed this year.
      • Total passive income is a sum of dividends + capital gains distributions.
      • AprilĀ Passive Income = (total passive income in this year) / 12 == $201.98 which beat the 2015 April number ($172.40 per month)
      • Doing it this way keeps the monthly passive income more realistic because I can instantly know which of my monthly expenses are covered by this amount. I keep a separate tracker for this which I will write about at a later date.
    • My intermediate goal is to get $1000 pm in passive income first. My estimation for 2016 is that I will reach $750 pm. Lets see if I can push it some more šŸ™‚