Emergency Fund

Financial Independence Progress Report for August 2016

/ humblefi / 7 Comments

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.
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Financial Independence Progress Report for June 2016

/ humblefi / 6 Comments

June is finally done! It is one of the two biggest months of the year for dividends. And it did not disappoint me 🙂 Lets look at June’s numbers. In a later post, I will do my quarterly review for the 2nd quarter and see how I am doing for the yearly goals.

07/02/2016
Emergency Fund ($72K)$60K 100.0%
College Fund (80K) 42% 42.53%
Passive Income (2015 vs 2016) $1038.14 (06/2015) $1741.69 (06/2016)
Retirement Fund ($900K) 61.31% 61.64%
Roof for our Family($750K) 00.00%
Medical Fund 00.00%
Life Insurance Done (term life insurance payments initiated)

Main Takeaways this month

  • Dollar Cost Averaging
    • In May, I reduced my Emergency fund and moved some of it into a new Dividend mutual fund (VDAIX). I was keeping the remaining money as a Cash Fund to invest on the next market downturn….and boy…did Brexit provide that for me.
    • Brexit turned out to be a boon for me. The market dropped on two consecutive days in a big way….DOW dropped by 600 points and 300 points on consecutive days. Thanks to the people of United Kingdom for this!
    • I had a couple thousand dollars left over from the emergency fund makeover and pushed all the money (and some) into my passive income streams. Yeah for dollar cost averaging….this cash infusion will make its presence felt over the years via dividend compounding.
  • 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 and now I am officially out of cash…I mean I am so out of cash that I had to borrow money from my wife to pay the bills for this month. I am never going to hear the end of this for sure 🙂
    • So, for the next 3-4 months at least, I will have to run a very very tight ship 😦 Hey, the sacrifices will pay off in the long run right? And the dividends coming in will hopefully keep me motivated and help me ride out the low-cash situations.
  • Passive Income Stream
    • Passive Income for June 2016 recaptured the increase in dividends over the same period last year. June 2015 had a dividend income of $278.52 and June 2016 has a dividend income of $378.08 …a decent year-over-year increase.
    • My goal is to reach $750 pm by end of this year…considering we are at the half way mark for the year and my monthly dividends are close to $400 pm, I can see now that I am going to reach it….eagerly waiting for the day when this event happens!

Financial Independence Progress Report for May 2016

/ humblefi / 7 Comments

If April was the slowest month year-to-date, May was not that far behind 🙂 But, on the positive front, May 2016 is better than May 2015!  And, I can’t wait for June’s dividends…it is the second biggest month in terms of dividends for me. So, if we are done with May 2016, it is an exciting time for me. Lets look at May’s numbers.

06/05/2016
Emergency Fund ($72K)$60K 100.0%
College Fund (80K) 41.25% 42%
Passive Income Streams ($4000 pm) $235.30 (05/2015) $371.51 (05/2016)
Retirement Fund ($900K) 61.08% 61.31%
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….
    • In April, I made changes to my Capital Appreciation bucket. I wrote about it here. In May, I have strengthened my dividend portfolio with a new mutual fund investment.
    • In May, I reduced my Emergency fund by $12K and moved a quarter of it into another Dividend mutual fund. I am sure Vivienne is smiling on this reduction in cash holding. You can check her out at WellRoundedInvestor.com, ….she is a FI blogger way ahead of the curve!  She has always encouraged me to invest some of the idle cash 🙂 Lo and behold, I did it.
    • The period of unemployment I went through this year has motivated me to generate more dividends and accelerate my journey towards FI. So, I decided to invest some money from the emergency fund and accelerate my financial independence.
  • VDAIX (Vanguard Dividend Appreciation Index)
    • I have initiated a new position in VDAIX…this completes my multi-pronged approach to build a solid dividend platform. More details in another post.
    • This fund invests in many companies that have a history of increasing dividends. If there is a discussion of quality companies, the companies in VDAIX has to be part of that discussion. The fund’s portfolio is listed here.
    • I am going to Dollar Cost Average into this over the next few years and build another solid portfolio investment.
  • Cash Fund
    • I have started a small cash fund to keep handy…I anticipate a few days of down market towards the end of June…with the interest rate drama, Britain’s exit from Euro decision, etc.
  • Passive Income Stream
    • Passive Income for May 2016 recaptured the increase in dividends over the same period last year. May 2015 had a dividend income of $235.30 and May 2016 has a dividend income of $371.51 …a decent year-over-year increase.

2015 Goals and progress updates

/ humblefi / 6 Comments

NOTE: Updated quarterly; latest update is on 12/26/2015 

I started my humble journey towards Financial Independence in 2014. I did establish what Financial Independence means to me and what the goals were. But, I really did not have any yearly goals for 2014. I just wanted to come up with a plan and create multiple passive income streams and let them fly, protect my family with life insurance, etc. I believe that I have accomplished all the goals I implicitly had for 2014. For 2015, I wanted to be a little bit more formal about goal setting and I will document my 2015 goals in this post, updated quarterly. Monthly Progress Report is tracked here.

The Financial Independence criterion for me are:

Financial Independence Criterion
Emergency Fund $72K
College Fund $80K
Passive Income Streams $4000 per month
Retirement Fund $900K
Roof for our Family $1 million
Medical Fund $100K
Life Insurance Done initiating.

For 2015, I have thought about the following goals to get me closer to the above financial independence goals. The updates are quarterly for each goal.

  1. Max out 401K contributions for both me and my wife.(Done: 12/31/2015)
    1. 2015 401K limit is $18000 => $36K worth of 401k contributions.
      1. 03/31/2015 $13K/$36K done       $23K remaining
      2. 06/30/2015 $26K/$36K done       $10K remaining
      3. 09/30/2015 $32K/$36K done       $4K remaining
      4. 12/26/2015 $36K/$36K done        $0K remaining
  2. Contribute $16000 to Passive Income Streams (stretch goal of $24000) Done (09/30/2014)
    1. VCAIX, VTMFX, VDIGX, VHDYX, VTCLX, VTMSX, VTMGX, VMMXX.
      1. 03/31/2015 $4K/$16K done         $12K remaining
      2. 06/30/2015 $8K/$16K done         $8K remaining
      3. 09/30/2015 $25K/16K done         $0K remaining
      4. 12/26/2015 $37K/16K done         $0K remaining
  3. Contribute $4800 to 529 College Fund (Done: 12/31/2015)
    1. Vanguard 529 Plan
      1. 03/31/2015    $1200/$4800          $3.6K remaining
      2. 06/30/2015    $2400/$4800          $2.4K remaining
      3. 09/30/2015    $3600/4800            $1.2K remaining
      4. 12/26/2015    $4800/4800            $0K remaining
  4. Deposit maturing CDs into passive income streams Done(01/17/2015)
    1. VCAIX: $35K   $30K
    2. VTMFX: $10K $20K
    3. VDIGX: $10K  $15K
    4. VHDYX: $5K   $10K 
  5. Keep scouting for a possible home (Not Done: 12/26/2015)
    1. A paid off house is a must for financial independence.
      1. 03/31/2015         No progress
      2. 06/30/2015         Finished mortgage analysis, finally!
      3. 09/30/2015         Scouting properties….not much luck.
      4. 12/26/2015         Prices way out of reach. Some discussions on relocating to a different state…not sure yet
  6. Start and finish Estate Planning (Not Done: 12/26/2015)
    1. Will, POD beneficiaries, Caretaker for our child, etc
      1. 03/31/2015        No progress
      2. 06/30/2015        No progress
      3. 09/30/2015        No progress
      4. 12/26/2015        No progress…definitely for the coming year
  7. Get a more stable job. (Not Done: 12/26/2015)
    1. Current job is on very shaky foundations
      1. 03/31/2015        No progress
      2. 06/30/2015        Interview preparation started!!
      3. 09/30/2015        Interview preparation slowed down 😦
      4. 12/26/2015        No resolution yet…need more will power 😦

How to prepare for the next recession?

/ humblefi / 13 Comments

For the past few months, I am seeing some excesses in the market that has brought back memories of past boom+bust cycles. For example,

  • A 2bed/2bath condo sold for a neat $1mil,
  • A 3bed/2bath townhome list for $850K and sell for $1.2mil…I am not joking about this 😐
  • I saw many people jumping in to buy $70K cars
  • I saw people bid more than $100K over the list price to buy a very old home
  • ……

The above observations remind me of previous boom cycles and I felt that it was time to revisit lessons learnt from past boom+bust cycles. Hence this post. Hope it is useful for you. If you have lessons of your own to share, please do so…it would be much appreciated.

Boom+Bust cycles

I have faced two official recessions OR you can say a few bubble-pops in the last two decades of my life.

  • Economy was doing well..here comes the dot-com bubble pop in 2001
    • This was officially a recession
  • Economy was doing well..here comes the market tank due to the Iraq war
    • This was officially not a recession, but job losses were the same…..
  • Economy was doing well..here comes the real estate bubble pop in 2008
    • This was officially a recession

Before each recession, there is a period of bubble formation OR economic prosperity….pick your poison 🙂 One could go back in US economic history and one would find the same repeated pattern of BOOM and BUST cycles.

  • 2004 to 2007: Boom time; Bubble pop in 2008-2010
  • 1994 to 2000: Boom time; Bubble pop in 2001-2003
  • 1983 to 1991: Boom time; Bubble pop in 1992-1994
  • ……..

The current Boom cycle has been on from 2010 onwards…I.e. we are more than due for a Bust real soon…..can we benefit from this knowledge? If you are interested in how I plan to benefit, please read on.

What did I see or not see during these cycles?

  • For the 2001 bubble pop, I had no idea this was coming…I was a finance newbie and really did not even know what 401K meant. But, I did see a lot of job losses around me, close friends getting hurt bad and I myself barely scraping through..more luck than anything else….it was a very stressful time.
  • For the 2008 bubble pop, I could see it coming and did take some decisions like moving to a more stable job, creating an emergency fund, etc. But, I did not predict the severity of the recession….again, it was a lot of job losses around me and it was again a very stressful time. I was fighting so hard to retain my job and stay afloat that benefiting from it did not come to my mind.

But, since I was no longer a financial newbie, I was fortunate to be around people who, on hindsight, proved to be financial geniuses. I was not smart enough to financially benefit form the lessons at that time, but I plan to do so in the next recession. Here are some examples of a common patterns I saw during the boom+bust cycles.

  • A person I know dumped $150K into the stock market, in the worst of the 2008 bust cycle and by 2014, he had more than doubled…infact almost tripled his investment. At that time, I thought he had nerves of steel to do that but on hindsight, he was just making use of the recession. He has now officially retired and working part time just for the social connections.
  • A person I know, a financial newbie, bought a home in 2008, under pressure from family since a baby was on the way. She really hated the idea of buying and came up with all financial reasons not to…but, a relative who happened to be a real estate agent convinced her otherwise and  even dropped the commissions for the purchase. Her house is now $500K past the purchase price and she stopped working to spend time with the baby. She now looks like a financial genius and the relative loses no chance to rub it in.
  • A couple of people I know bought houses at the peak of the boom cycle in 2000, 2004 and 2007. They went through a lot of suffering with undervalued houses…especially with the threat of job losses hanging over their head. It took many many years to break even and some have not yet done it still.
  • Job loss means loss of two important things as well: Health insurance and Life insurance.
    • COBRA insurance premiums for a family of 4 can cost as much as $1900 per month
    • No job => no life insurance => no protection for family

What did I learn from these cycles?

The lessons I learnt can be broadly classified into the following points:

  • When you see excesses in the market, then it is a forewarning of an upcoming recession.
  • If your only source of income is shaky, then it is hard to take risks and benefit from the recession/bust cycle.
  • Big items (houses and cars) should always be purchased in a recession or bust period. A mistake make in either of the two can take years and years to recover from…especially the house.
  • Make yourself very valuable to your company….but at the same time, be prepared to interview for a job at any time

My plan for the next recession

An often heard sating is: Attack is the best form of defense. For the next recession, I plan to attack it with a goal to benefit from the recession, rather than take it lying down. Based on the lessons learnt from past recession cycles (previous section), here is the action plan I have implemented since April of last year.

  • Lesson: When you see excesses in the market, then it is a forewarning of an upcoming recession.
    • Action plan:
      • Watch for excesses in the market
    • Results:
      • I am already seeing the excesses in the housing market and luxury items.
      • Now, I am sure we are entering the first stage of a bust cycle.
  • Lesson: If your only source of income is shaky, then it is hard to benefit from the recession/bust cycle.
    • Action plan:
      • Create an emergency fund.
      • Develop passive income streams and take out the reliance on income from work
      • Remove reliance on life insurance from the place I work.
    • Results:
      • Starting last year, I have designed and implemented a Passive Income Plan
        • On average, it will pay me roughly $500 per month.
        • Of course, this is not enough to replace my income. But, it does take care of food expenses for the family.
      • I have a 12 month Emergency Fund to take care of any temporary loss of income
        • When the income source is shaky, it is hard to take a risk like buying a house.
        • But, if you can survive for a year without a source of income, the confidence to take a risk is very high.
        • Hence the one year emergency fund.
      • I bought Life Insurance coverage to protect my family.
        • Until last year, my life insurance was provided through my work.
        • But now, life insurance is independent of my work…so, even in a loss of income scenario, my family is protected.
  • Lesson: Big items (houses and cars) should always be purchased in a recession or bust period.
    • Action Plan:
      • Have patience to wait for the next recession to buy
      • Create a good down payment fund that is big enough to reduce the monthly payments
      • Learn how to evaluate a house
    • Results
      • The highest amount of pressure to buy a new car, a new house, etc comes from peer pressure. I can take it, but my family has a hard time dealing with it. I have managed to convince them to stick with my plan until now…they have sacrificed a lot over the last couple of years. Now, I have to deliver on the house at least in the next recession.
      • I have reduced my investments a bit to start accumulating $300 more per month into my home down payment fund. When the recession strikes, I will be ready with my home down payment.
      • I am learning how to evaluate a house for purchase by doing the following:
        • Watch home inspection videos on you tube
        • Watch how pricing is done by reading articles on the net and videos as well.
        • Watch how to not get fooled by real estate agents.
          • A staged house sends warning bells ringing in my ears now….
          • For example, I found a common trick of using undersized furniture (bed, chairs, etc) to make the room look bigger.
          • Damn…these real estate agents are good huh 🙂
  • Lesson: Make yourself very valuable to your company….but at the same time, be prepared to interview for a job at any time
    • Action Plan
      • Be rated near the top 20% in your company
      • Constant Preparation to make yourself ready to take a job interview on any day.
    • Results:
      • I have been working very hard to produce more things at work…but it has been slow digging. Likewise for my interview preparation.
      • But, now that I have plans in execution for all the other lessons, I will concentrate on this action plan for the rest of this year.

If you have read this far, then you really are a patient soul. Hope this info was useful in some way. Any tips you can share, please do leave a note in the comments section.

Money Stress…how I am trying to manage it.

/ humblefi / 2 Comments

I participated in a discussion on MMM forum today where a poster said the following:

More than 1 in 4 Americans report they feel stressed over money most or all of the time, and most say their stress over money has either remained about the same as last year (59%) or gotten worse (29%). http://www.latimes.com/science/la-sci-sn-stress-report-money-inequality-20150205-story.html

After reading the post and thinking about my own experiences, I realized that Uncertainty about the future is a big part of stress in any area…be it money stress, job stress, relationship stress or health stress. Unfortunately, I have been there, done that in all the areas I mentioned here. But, over time, I have managed to come to somewhat come to grips on each of them to varying extents. Today, I thought I will write about how I am handling my Money stress as a way to help some folks and as a way to learn from some more folks.

In my mind, there are three kinds of money stress I have seen/been around/experienced.

Type 1: Stress about money decisions made in the past

Examples in this type of money stress are:

  • Bought a home in the peak of 2007 in a HCOL area (friend)
  • Did not buy a home in 2009-2011 (me)
  • Did not invest money when I was young….(me)

Type 2: Stress about money decisions of today

Examples in this type of money stress are:

  • How will I pay my bills this month? (me)
  • My car broke down..how can I pay for it?  (me)

Type 3: Stress about money decisions of the future

Examples in this type of money stress are:

  • How will I pay for retirement? (me)
  • How will I pay for my parent’s care? (friend)
  • Will I have a job in 3 months? (me)
  • Can I even buy a house? (me)

People can be in any of the above three OR all three. At many points in life, I have experienced the following combinations of money stress:

  • Type 1 only.
  • Type 1 and 2 only
  • Type 1 and 2 and 3

My attempts at overcoming Money Stress

But, as I have grown older and started chipping away towards FI, I have reached the following state of mind:

I am least stressed about Type 1

  • stress is not zero..but I have mostly come to peace with my past

I am about 30% stressed about Type 2

I am 70% stressed about Type 3

  • Figuring out what financial independence means to me really really changed my life. It reduced a huge amount of Uncertainty on what the financial future looks like for me and my family.
  • Putting a $ value to each goal helps me stay focussed.
  • Tracking my progress towards financial Independence via this blog really helps in the following way:
    • reminds me of my goals pretty much every day.
    • reminds me to work hard to protect my current income.
    • reminds me to keep expenses as low as possible
  • Working towards Passive income streams before buying a house.
    • Sacrificing current desires for certainty about the future
  • Worry about smaller periods of time.
    • For example, if I only consider tomorrow, I have some worries. If I consider 1 year, my worries increase dramatically.

The Future

It has been a constant battle with money stress and basically uncertainty in life and I am sure that the battle is far from over. But, the above tips I have been practicing have helped me control the stress by slowly chipping away at the Uncertainties in my life…one chip at a time.

Hopefully, the above tips are helpful to others as well. Please share your own tips with me so that I can better my life by learning from your experiences.