Last night I was in Messenger, and I said hello to a contact that I haven't met in person, but he was someone with whom I'd chat with about 2 years ago. All was well until I mentioned to him that I started sharing my bedroom in the apartment I rent.
He didn't ask me why, but he quickly went on to judge me (someone he hasn't even met). He asked my age. I'm 36. Then he went on to ask me about my posessions. Do I have my own house? no
Do I have a car? no, and I don't want one. I live only a few minutes walk from the subway and a major avenue. I definitely don't want to waste money on a car. Then he went on to tell me that I don't even know if I'll have food to eat tomorrow. That isn't the case, but I didn't feel like correcting him since he didn't seem to care about my situation only my posessions.
He then told me that I have nothing. Then he continued to tell me how he has his own house and furniture and he pays his bills.
The difference is that he lived with his parents most of his life and his parents gave him for free the lot to build his house on. The hardest thing in a megacity is to find WHERE to build a house and actually buy it. The actual construction here is very easy to manage once you own the land. It is very likely he never rented. I'm not saying anything he did to have his house is wrong. What I'm saying is that his arrogance is wrong since he basically lived off of his parents while I have had to pay rent and bills and yes, I buy my furniture too. If he had been renting since his early 20s like I have and had he bought the land his house is on then I'd admire him. Since that's not the case, I think he's a jerk who deserves retribution for being so arrogant.
Should I have my own place by now? I suppose I really should, but my income isn't high, and I'm single. Most of my income isn't considered when applying for a loan. He also works independently, but since his parents gave him the land, he didn't even need to request a loan to build. Land in a megacity/metropolis is very expensive. If I lived in a small town or even a small city, I probably would be able to buy an empty lot for not so much.
As for his scolding me for sharing my room, I think that was just stupid, but that shows you how backwards people are. Instead of praising you for making a sacrifice to finally get ahead financially, they scold you since you really should spend as much money as possible and somehow manage to buy a house of your own while single on a low income. Sorry, but I'm not going to buy into that backwards thinking. That's what leads people into mortgage foreclosure and living on the street or with family, because they spent instead of saved.
No, I don't regret not living off of my parents during my 20s and then have the option of being an arrogant idiot like him. I'm very proud that I've been able to survive without having to ask my parents to support me or to give me land for my own house. I only regret not posting the roommate advertisement years ago! I'd have a lot more money saved today if I had a roommate sharing a room not only an apartment. I also wouldn't have had to move a few years ago when times were tough if I had shared the rent of my room with another.
I definitely want to continue to live with roommates and yes share my room (I started sharing this month). Some of the money I save will go toward bunk beds. The rest of the money I save goes toward my financial independence and early retirement. I definitely hope to have my own home, but I'm not going to be a jerk about it when I do. As long as I am single, I plan to have roommates! It just makes sense to share. Housing costs are normally the biggest expense and rent money isn't an investment. You pay it and it is gone. When I buy my own place, I also plan on having roommates. If I'm lucky their rent money will pay the bills or most of them. I will be able to have my own place and still retire early.
I actually could get a small loan for a tiny house without a yard on the outskirts of the metropolis, but I wouldn't be able to live there while I am working since it would be about 2.5 or 3 hours away and since there is no yard I wouldn't be able to have a garden. Those houses only have 1-2 tiny bedrooms so I wouldn't be able to share. It wouldn't be a very good investment since it wouldn't be a place I'd want except in an emergency. It makes more sense for me to invest in dividend stocks and bonds.
What do you value? Do luxuries like a car make you feel like you have more value that someone who takes public transportation? I think a better measure of how you are doing is in stability, the ability to cover your basic needs, and safety for the future. Having your own home gives stability, but only as much stability as being able to live in it and pay the bills. A car doesn't make you more stable, it eats money. A car is a convenience. How many months could you survive if you stopped working your regular job today? If I stopped earning money today, I could easily live 7 months and 10 months if I only cooked basic food at home.
Showing posts with label personal finance. Show all posts
Showing posts with label personal finance. Show all posts
Sunday, August 19, 2012
Thursday, July 19, 2012
Is life really too short to invest for your future?
I had an interesting chat with my other new roommate two nights ago. We were discussing my philosophy which isn't really new to me. Many people believe in living simply and saving for the future unfortunately here in Mexico and apparently in most of Latin America (this roommate is from Venezuela), the habit of saving is only for very short term savings typical reasons for saving money were for a party, for vacation, and for home electronics. Only about 8% of Mexicans according to the survey I read in a newspaper actually are saving anything for their retirement even though over 50% say they have the habit of saving.
Let me get back to the conversation. My roommate mentioned how its possible to die soon and not be able to enjoy your savings and early retirement. That is true but I think the odds are much higher that I'll live to be at least 50 and since all my grandparents ( I believe) were mid-80s or older when they died, unless I get sick or die from an accident I'll most likely live to my mid-seventies or older.
I guess it comes down to two things, how long you expect to live and if you believe that pleasure today is more important than pleasure tomorrow and the day after. In other words, is it worth it to sacrifice the car or the apartment in an expensive area and the restaurant meals in favor of simple living in a cheap apartment sharing with roommates so that you'll be able to cover emergencies and if there aren't any emergencies in the next 6-10 years be able to retire early?
Only you can answer that question for yourself. Like him, I also think that life is too short. I think it is very possible that I could die before I'm 67 or whatever the government's retirement age happens to be. I would like to be able to be financially free and do whatever I want for years before that time. I'd like to travel the world and make destination photo books to sell online. I'd like to meet new people, try new food, and learn new languages. I'd like to have time to take lessons to improve my manual art skills. If I didn't have to work everyday to live, I'd have a lot more time for those activities especially travel.
It is difficult to say if I'll be able to reach the goal since I'm averaging about 50% savings even with my frugal lifestyle. My income isn't high enough to save more. I do know that even a little makes a big difference over time.
Are you one of the 92% who leaves your normal-old-age retirement to God or your children? It is time to wake up because you might not die young as you planned and your children might be spending their money on your grandchildren instead of you. What does life is short mean to you? Does it mean to forget the future and be irresponsible or does it mean to plan for tomorrow?
Let me get back to the conversation. My roommate mentioned how its possible to die soon and not be able to enjoy your savings and early retirement. That is true but I think the odds are much higher that I'll live to be at least 50 and since all my grandparents ( I believe) were mid-80s or older when they died, unless I get sick or die from an accident I'll most likely live to my mid-seventies or older.
I guess it comes down to two things, how long you expect to live and if you believe that pleasure today is more important than pleasure tomorrow and the day after. In other words, is it worth it to sacrifice the car or the apartment in an expensive area and the restaurant meals in favor of simple living in a cheap apartment sharing with roommates so that you'll be able to cover emergencies and if there aren't any emergencies in the next 6-10 years be able to retire early?
Only you can answer that question for yourself. Like him, I also think that life is too short. I think it is very possible that I could die before I'm 67 or whatever the government's retirement age happens to be. I would like to be able to be financially free and do whatever I want for years before that time. I'd like to travel the world and make destination photo books to sell online. I'd like to meet new people, try new food, and learn new languages. I'd like to have time to take lessons to improve my manual art skills. If I didn't have to work everyday to live, I'd have a lot more time for those activities especially travel.
It is difficult to say if I'll be able to reach the goal since I'm averaging about 50% savings even with my frugal lifestyle. My income isn't high enough to save more. I do know that even a little makes a big difference over time.
Are you one of the 92% who leaves your normal-old-age retirement to God or your children? It is time to wake up because you might not die young as you planned and your children might be spending their money on your grandchildren instead of you. What does life is short mean to you? Does it mean to forget the future and be irresponsible or does it mean to plan for tomorrow?
Wednesday, July 11, 2012
Follow through and follow up on your new Budget
In the last two posts I introduced budgeting and how I normally create a budget. To get ahead you need to know where your money is going, plan for the future, and carry out that plan.
Once you have your fresh budget created you need to actually implement the budget by reaching or exceeding your savings, spending, and investment goals. Here are some important things to consider:
Even a perfect spending plan will frequently change because circumstances change. If you lose your job, get a second job, get or lose a roommate, or decide to buy a new car, guess what? your budget will have to be updated. You are responsible for your personal finances regardless of whose fault it is.
If you put your expenses before saving and investing you might discover that you didn't save as much as was in your budget. Really of all your spending plan, your savings and investments are the most crucial to get ahead financially. Since you didn't meet your goals, check to see what the problem was and next month deposit the percent of income you have budgeted into your savings and investment accounts as soon as you get paid! Instead of saving and investing with the left over money, use the left over money for non-essentials.
Once you have your fresh budget created you need to actually implement the budget by reaching or exceeding your savings, spending, and investment goals. Here are some important things to consider:
1. Follow up on expenses.
Make sure they are accurate. Did you forget to add your monthly haircut or your personal care products to your budget? Perhaps you forgot to include your monthly gym membership? You might have spent more than planned so you'll either need to save less or spend less in other areas. Make changes to your budget to reflect reality THEN change reality by reducing what you spend. As you modify your spending habits, you'll see the change on your spreadsheet where you register expenses and income.2. Review your goals
Once a month, reconsider your goals, their priority, and timeframe. Are you saving enough? Are your investments earning as much as you predicted? You might have to increase savings or change the start date for your new projects. However without your budget you wouldn't have realized it.3. Have circumstances changed?
Even a perfect spending plan will frequently change because circumstances change. If you lose your job, get a second job, get or lose a roommate, or decide to buy a new car, guess what? your budget will have to be updated. You are responsible for your personal finances regardless of whose fault it is.
4. Did you pay yourself first?
If you put your expenses before saving and investing you might discover that you didn't save as much as was in your budget. Really of all your spending plan, your savings and investments are the most crucial to get ahead financially. Since you didn't meet your goals, check to see what the problem was and next month deposit the percent of income you have budgeted into your savings and investment accounts as soon as you get paid! Instead of saving and investing with the left over money, use the left over money for non-essentials.
Tuesday, July 10, 2012
The Budget or Spending Plan that I Follow
For many years I struggled to find a way to budget that would work for my personality and time constraints. I know that having a precise record of spending and spending per category is useful, but I can't keep it up over the long term. If you can that's great.
Then one day over a year ago, I was reading an article on MSN Money about the 60% solution. I would have linked the original article, but it is no longer available on MSN. I searched for it and the link in their own search results is bad so I guess they pulled the article. It is too bad because it is the best budget method I've been able to find.
Take your total income and multiply it by .6 to get 60% (and add a line in your budget to calculate it and to compare it with your current planned expenses)
Lets say you get paid $500 twice a month. 60% would be $600 for the month.
60% is the most you can spend on ALL of your normal expenses. Yes, thats everything you normally spend money on even your month's credit card expenses, food, housing, transportation, cable, insurance, telephone, cell phone, etc.)
The remaining 40% is for entertainment (10%) and Savings (30%). That means that you can't spend more than 10% of your income on Entertainment (not 40%!).
If I remember correctly the 30% is divided into 3. 10% for irregular expenses like vacations, weddings, gifts or when something expensive breaks and you need to fix them. 10% for long term saving like for a new car, buy a house, etc. 10% for retirement.
It is a good system for most people since it will cover almost anything that comes up. That 30% savings every month will quickly grow an emergency fund and later investments or you could be strict and really put 10% in different accounts.
What about debt? If you are in debt, you can spend 20% from Savings and 10% from Entertainment to pay the debt down. Obviously if your current expenses are below 60% don't increase them! any additional money that can go towards debt payment and investing is great.
I have an irregular income instead of a paycheck so my 60% is different every month. That means that I can't set up any automatic process of moving $x to 3 different saving and investment accounts on the 16th and 1st. I calculate what I should make every month based on what I expect and as classes get canceled, I reduce the number and update the income field for the month.
If I'm having a really bad month I'll save only 30%. If I'm having a good or normal month I'll deposit 50% of the money I receive twice a month (since I charge twice a month). Yeah, I know 50% is much higher than the 30% in the plan, but you never know when a month will arrive that won't let me save anything so it will probably average down to 40% this year.
My goals include buying a condo, house, or land outside of the city for building a small house. 30% savings won't get me there! Therefore I've been slowly adjusting my expenses down from a 60% solution to a 40% solution. 40% solution would therefore be to limit regular expenses to 40%, consider 10% for irregular expenses and entertainment and put the other 50% toward savings and investing.
If I were to divide up the 50% up into groups, it would depend on age. I'm 36 now and I don't own my own home or even some place to camp on if I needed to so my first goal is to have enough savings for emergencies and to buy some place to call my own. If I save 50% the next 4 years, I should have enough money for a deposit on a tiny condominium here in Mexico City or pay for half of a house out on the edge of the city (about 2 hours in public transportation from where I live now!) That money would probably pay for an undeveloped lot outside of the city about 3 hours away from here. They all have pros and cons.
My next goal is to have money for retirement or semi-retirement. Until I buy my own place, I'm putting all the money that isn't emergency fund into a special account for retirement savings. There are no fees for taking money out before I'm old. If I don't see the money grow there, I might move it to a brokerage account.
If you are new to budgeting, you are probably thinking "60% or 40%? you've got to be kidding me!" No, I'm not. I make less money than you'd make on minimum wage in the United States. I share an apartment in a relatively poor area. I don't have a car. I don't buy a lot of stuff. I only pay for services that I really want. I don't have movie channels. I don't have a television either. I pay for internet and an inexpensive cell phone plan. I don't have a home telephone right now either. I don't buy a lot of clothes and none of it is name brand. I'm currently only struggling with my food expenses. It is easy to buy fast food or a taco going to or from work. If I cooked and packed all my meals I'm sure I'd have 50% saved every month as long as I keep working and sharing the apartment.
If you can't save 30% every month, start by reducing the biggest expenses: housing, transportation, and food. Then go after extras that you pay for every month. Finally go after the entertainment related expenses until you can reach your savings goal at 30%, 50%, or more!
Then one day over a year ago, I was reading an article on MSN Money about the 60% solution. I would have linked the original article, but it is no longer available on MSN. I searched for it and the link in their own search results is bad so I guess they pulled the article. It is too bad because it is the best budget method I've been able to find.
Here's how it works (at least how I remember it!)
Take your total income and multiply it by .6 to get 60% (and add a line in your budget to calculate it and to compare it with your current planned expenses)
Lets say you get paid $500 twice a month. 60% would be $600 for the month.
60% is the most you can spend on ALL of your normal expenses. Yes, thats everything you normally spend money on even your month's credit card expenses, food, housing, transportation, cable, insurance, telephone, cell phone, etc.)
The remaining 40% is for entertainment (10%) and Savings (30%). That means that you can't spend more than 10% of your income on Entertainment (not 40%!).
If I remember correctly the 30% is divided into 3. 10% for irregular expenses like vacations, weddings, gifts or when something expensive breaks and you need to fix them. 10% for long term saving like for a new car, buy a house, etc. 10% for retirement.
It is a good system for most people since it will cover almost anything that comes up. That 30% savings every month will quickly grow an emergency fund and later investments or you could be strict and really put 10% in different accounts.
What about debt? If you are in debt, you can spend 20% from Savings and 10% from Entertainment to pay the debt down. Obviously if your current expenses are below 60% don't increase them! any additional money that can go towards debt payment and investing is great.
What I'm doing differently from the 60% solution
I have an irregular income instead of a paycheck so my 60% is different every month. That means that I can't set up any automatic process of moving $x to 3 different saving and investment accounts on the 16th and 1st. I calculate what I should make every month based on what I expect and as classes get canceled, I reduce the number and update the income field for the month.
If I'm having a really bad month I'll save only 30%. If I'm having a good or normal month I'll deposit 50% of the money I receive twice a month (since I charge twice a month). Yeah, I know 50% is much higher than the 30% in the plan, but you never know when a month will arrive that won't let me save anything so it will probably average down to 40% this year.
My goals include buying a condo, house, or land outside of the city for building a small house. 30% savings won't get me there! Therefore I've been slowly adjusting my expenses down from a 60% solution to a 40% solution. 40% solution would therefore be to limit regular expenses to 40%, consider 10% for irregular expenses and entertainment and put the other 50% toward savings and investing.
If I were to divide up the 50% up into groups, it would depend on age. I'm 36 now and I don't own my own home or even some place to camp on if I needed to so my first goal is to have enough savings for emergencies and to buy some place to call my own. If I save 50% the next 4 years, I should have enough money for a deposit on a tiny condominium here in Mexico City or pay for half of a house out on the edge of the city (about 2 hours in public transportation from where I live now!) That money would probably pay for an undeveloped lot outside of the city about 3 hours away from here. They all have pros and cons.
My next goal is to have money for retirement or semi-retirement. Until I buy my own place, I'm putting all the money that isn't emergency fund into a special account for retirement savings. There are no fees for taking money out before I'm old. If I don't see the money grow there, I might move it to a brokerage account.
If you are new to budgeting, you are probably thinking "60% or 40%? you've got to be kidding me!" No, I'm not. I make less money than you'd make on minimum wage in the United States. I share an apartment in a relatively poor area. I don't have a car. I don't buy a lot of stuff. I only pay for services that I really want. I don't have movie channels. I don't have a television either. I pay for internet and an inexpensive cell phone plan. I don't have a home telephone right now either. I don't buy a lot of clothes and none of it is name brand. I'm currently only struggling with my food expenses. It is easy to buy fast food or a taco going to or from work. If I cooked and packed all my meals I'm sure I'd have 50% saved every month as long as I keep working and sharing the apartment.
If you can't save 30% every month, start by reducing the biggest expenses: housing, transportation, and food. Then go after extras that you pay for every month. Finally go after the entertainment related expenses until you can reach your savings goal at 30%, 50%, or more!
Monday, July 9, 2012
Introduction to Budgeting (creating a spending plan)
This post is for those who are new to the concepts of managing your money.
What is a budget and why is it important?
A budget is a spending plan. In its most essential form, a budget is a list of income and expenses for a specific period of time. You could have a budget for your vacation, a budget for a business trip, or a personal finance budget. I'm referring to the last one in this blog since it is about my personal finance journey.
What do I need to create a personal finance budget for me (or my household)?
To create a budget you need to decide how often you'll update your budget (typically every 15 days) , how long of a period it will cover (typically one month), and some place to write down all the numbers and make calculations. You also need to know how you spend your money. It is good to have a pile of bills from the last month and the last of the bills that come every other month or longer like the utility bills or car insurance. If you earn a paycheck take out the last month's pay stubs. If you work freelance, look at your client payment register and look at checks and deposits to your account.
The period of a budget and the level of detail in a budget really depends on you, but since most regular bills come every month, it is much simpler to do a monthly budget and update it as you go even if you are paid every week, every two weeks, or twice a month.
The frequency you use to update your budget is a matter of personality and dedication. If you like to micromanage and you have free time everyday, you could update your expenses and categorize each one and then compare the end of the month with your plan. It can be great to see how you think you spend your money is different from how you really spend it!
Personally, I think of a budget as a guide. I don't really care where every last cent or peso got spent during the month as long as I'm making the desired progress toward my goals. As soon as I start to fall short I'll make an adjustment. I do however pay special attention to repeating, regular expenses since those need to be reduced, cut, or replaced when my income drops.
Since I don't like to worry about every peso that leaves my pocket I consider my money as going to the following categories:
1. Basic Expense
2. Entertainment/ going out
3. Irregular Expense
4. Savings and Investments
No, I don't actually make those categories on my budget spreadsheet, but that's how I think about expenses for budgeting.
On my actual budget spreadsheet I group them as follows:
1. Expenses (with a list of regular expenses and approx. costs)
2. Savings and Investments (divided by account I deposit the money to)
Basically, on my budget it is:
1. Money I plan to spend
2. Money I have saved
3. Money I end up spending on Entertainment or other misc. irregular expenses.
If you control every peso/dollar that you have then you just have:
1. Money you spend
2. Money you save
What is important when creating a budget?
The most important things to consider when creating a budget are your goals, and to live below your means. That means that all your expenses planed and unplanned need to be well below 100%. (no, 90% isn't well below). If you spend 100% of your money every month, you are not going to have money for anything else and you'll either have to go without or go into debt (credit card!)
Your budget should reflect your goals. If you have no goals then make a list of what is important to you and what isn't important. What makes you happy? What would make you happy? Where do you see yourself in 5 or 10 years according to your current spending and where would you like to be?
Most people want to change or improve their finances, but they are afraid or they don't have established goals. Without goals, it is too easy to just spend money on whatever you feel like and usually end up in debt. Another big problem is that with credit cards and debit cards it is very easy to spend money as long as you have one or the other in your billfold so to actually carry out a budget it is often important to keep those locked away at home most days or get used to having small quantities for cash for spending that day or week. You'll have to find what works best for you.
Where should you create your budget?
You only really need a notebook, a pen or pencil, and a calculator, but I think it is much better to do a budget on a computer since it can calculate percents and averages. It is important to keep a monthly log of spending and/or saving along with income to get a better idea of your progress that you can compare with your general spending plan and your goals.
I know that for USA and Canada there is a service called Mint.com that is useful for making a budget and tracking spending with reports, but that isn't available to someone outside of those countries. There is also special software like Quicken that you can buy, but then you are stuck updating when you are on the computer it is installed on. I tried some budgeting software, but it was more tedious and of course if the hard drive crashed or the system became corrupt, I'd sometimes lose my data and configuration. The best option (at least for those of us who don't have Mint) is to use a spreadsheet stored online (and a backup on your computer). My favorite service is Google Docs (now part of Google Drive). I can create/edit/update my budget anywhere I can find a computer with an internet connection. I don't need to worry about software purchases or upgrades that way.
I recommend that after you set up your basic categories of income, spending, and savings, and of course the subcategories for the level of detail you want, add special calculations that will help you with your goals for example:
Make fields for % saved and % spent (including savings & investment) If the number is over 100%, you messed up or you have unspent money from last month that you forgot to deposit!
A column for total spent and average spent in each category is also very useful. Over time, you'll know your average income, expenses, and savings either as approximate or precise depending on how regular you update it. I'm more careful updating income and savings and less worried about the rest.
A spreadsheet page for calculating your net worth (assets vs. liabilities) over time is also very useful, but it is your spreadsheet so you should adapt it to your needs.
In the next post, I'll write about the spending plan I currently use.
Sunday, July 1, 2012
Having Roommates makes a big difference! Reduce your housing costs for Financial Independence.
The last 7 month's have been a little crazy for me. Before mid-December of 2011 I was in a stable roommate situation in a very cheap and very tiny town home very far out in the suburbs. I wasn't happy with my roommate due to his financial decisions (always broke do to poor judgement) and due to his occasional tantrums (even though he is one year older than me, he seemed more like a grade school student when he didn't get his way). Obviously, I wanted to change my situation because happiness is more important than money and if you are not happy at home, you won't be truly happy elsewhere.
I was offered the opportunity to share a 3 bedroom apartment in a slightly poor area 30 minutes in transportation north of downtown just a few minutes walk from a subway station. My cut of the expenses was much more than I was paying way out in the suburbs, but I had poor neighbors and I knew that I didn't want to rent alone due to the expense and of course rents are much higher in the city proper than on the outskirts of the metropolitan area. I accepted and the drama quickly started. I discovered I replaced one bad roommate with two. These were very dishonest and noisy. They loved having loud parties every holiday and all night. I tried again to find a room to rent in a decent place for a good price, but I didn't find one.
As luck would have it one bad roommate moved out in March about half way through a month he didn't pay. He owed me some money too. I paid more to cover half of his room's cost that month. I was happy that he left because I learned to despise him during the few months we shared the apartment.
In May, I discovered that the OTHER roommate, who did find someone to rent the other room the next month, had lied to me and the new (better roommate) about needing to pay an extra month of deposit. It wasn't true. Last month (May) that roommate left leaving his stuff and owing money for the electricty and water bill which he said he'd pay but never did. He of course owed money to the landlady and to me for the last month's rent and the "extra deposit" money I had given him. Thankfully a mutual friend was able to pressure him to give money for (most of ) his outstanding bills at the apartment.
Now starting July, I discover that I'm the one in charge of the roommate situation here but also in charge of paying the rent and the basic bills (internet, water, gas, electricity). I didn't imagine it would turn out like this, but life does that to you. You think everything will be just right and then everything changes!
What's different? Well I'll be signing a one year contract for renting here. It doesn't bother me because it isn't expensive and it is a good location. There was one problem. for June, I still hadn't found a roommate for the extra room so I paid 2 of the 3 rooms here. I got 1 month back from the money they got from the roommate who left in May, but that money went from my pocket back out as rent.
How does it feel to pay 2/3 of the apartment instead of 1/3? It felt horrible because my housing cost doubled. Double rent means 1267 pesos less in savings or for other expenses like clothing or whatever else I could use.
In an ideal world I'd be able to find good honest and responsible roommates from the start, but it seems you don't really know what someone's like until you live with them for a few months!
What if I had rented this apartment by myself from the start like many people? I would have saved 2533 pesos less each month for the months I have had paying roommates. That is a huge amount! People who rent a house or an apartment with more than one bedroom and don't rent out the other room are wasting money every single month. Yes, you can have bad roommates, but you can also find good ones eventually. Every month you share the cost of your home, you can save money for other things you need or for your retirement.
Lets say you don't care about retirement, but you are renting a 2 bedroom apartment alone. If you can find someone to pay 50% of your rent to stay in the other room, you could save the other half for emergencies, for a vacation (instead of using the credit card), to buy your own place in cash eventually, or perhaps for that large screen 3D LED/LCD TV you've been drooling over. Sure it might take a few months or more to pay for that television in savings, but the point is that sharing makes financial sense.
I am happy to report that two days ago after a month of asking friends in Facebook, MSN, etc. if they know of anyone who wants to share, a friend let me know of two best friends needing a place to stay. They'd prefer separate rooms, but for the moment they can share. I gave a price of rent plus general expenses to cover bills plus cleaning supplies, toilet paper, and stuff like that. NO, I won't make any profit on this. Any extra money after paying bills and other general apartment expenses I'll set aside for things requested.
Last night after their first night here, one suggested getting a washing machine. That really wouldn't be a bad expense since I hate washing by hand and a washing machine would pay for its self in 12-15 months including the extra cost of electricity, water and detergent. I didn't want to get one because I didn't know if I'd even still be living here in 2-3 months, but since I'll be signing a contract for a year and finally have people in the other room, I might just go for it if I can find a machine that isn't more than 4000 pesos. It would eat my extra savings the first month, but I'd save about 350 pesos each month by not dropping of my clothes to be washed every week. How much would I save with a full house of roommates using a washer? Probably not much, but if each pays 100 pesos more in their rent, that would cover the extra utilities and everyone would be happy. They'd save money and so would I.
What's next for me? I know I spend too much on food, but what I'd really like right now is to find a roommate to share my bedroom with. I'd probably spend 1 or two month's in savings just getting my essential stuff organized to make room for someone else, but later I'd have an extra 633 pesos each month for saving or again for whatever I want. Plus, I really like sharing with others as long as they are not noisy and are responsible. I'm really not sure if I'll put up an advertisement for sharing my room, but if anyone asks I'll be sure to mention the opportunity!
How is my financial freedom situation different from others online? I make very little money compared to most I see in forums online. I'm not an engineer or physicist or any other high paying occupation. I work freelance so my income is irregular, I just need to sacrifice more in spending. What someone in USA considers bare-essentials seems very luxurious to me with their car, whole apartment and budget that includes clothing and other extras. I'm a shy extrovert. I like being with good people so even sharing my own room would be good. If you are introverted, find another introvert for your OTHER bedrooms. Since both of you will need more alone time, you'll discover you'll chat for a few minutes and be in your bedrooms most of the time you're at home!
If you are lucky enough to have a good steady income, take advantage of the opportunity to have roommates and save money for your future. If your extra rooms and garage are full of stuff you haven't touched for at least a year, plan a garage sale, sell it on E-bay, or just donate that stuff to Goodwill!
I was offered the opportunity to share a 3 bedroom apartment in a slightly poor area 30 minutes in transportation north of downtown just a few minutes walk from a subway station. My cut of the expenses was much more than I was paying way out in the suburbs, but I had poor neighbors and I knew that I didn't want to rent alone due to the expense and of course rents are much higher in the city proper than on the outskirts of the metropolitan area. I accepted and the drama quickly started. I discovered I replaced one bad roommate with two. These were very dishonest and noisy. They loved having loud parties every holiday and all night. I tried again to find a room to rent in a decent place for a good price, but I didn't find one.
As luck would have it one bad roommate moved out in March about half way through a month he didn't pay. He owed me some money too. I paid more to cover half of his room's cost that month. I was happy that he left because I learned to despise him during the few months we shared the apartment.
In May, I discovered that the OTHER roommate, who did find someone to rent the other room the next month, had lied to me and the new (better roommate) about needing to pay an extra month of deposit. It wasn't true. Last month (May) that roommate left leaving his stuff and owing money for the electricty and water bill which he said he'd pay but never did. He of course owed money to the landlady and to me for the last month's rent and the "extra deposit" money I had given him. Thankfully a mutual friend was able to pressure him to give money for (most of ) his outstanding bills at the apartment.
Now starting July, I discover that I'm the one in charge of the roommate situation here but also in charge of paying the rent and the basic bills (internet, water, gas, electricity). I didn't imagine it would turn out like this, but life does that to you. You think everything will be just right and then everything changes!
What's different? Well I'll be signing a one year contract for renting here. It doesn't bother me because it isn't expensive and it is a good location. There was one problem. for June, I still hadn't found a roommate for the extra room so I paid 2 of the 3 rooms here. I got 1 month back from the money they got from the roommate who left in May, but that money went from my pocket back out as rent.
How does it feel to pay 2/3 of the apartment instead of 1/3? It felt horrible because my housing cost doubled. Double rent means 1267 pesos less in savings or for other expenses like clothing or whatever else I could use.
In an ideal world I'd be able to find good honest and responsible roommates from the start, but it seems you don't really know what someone's like until you live with them for a few months!
What if I had rented this apartment by myself from the start like many people? I would have saved 2533 pesos less each month for the months I have had paying roommates. That is a huge amount! People who rent a house or an apartment with more than one bedroom and don't rent out the other room are wasting money every single month. Yes, you can have bad roommates, but you can also find good ones eventually. Every month you share the cost of your home, you can save money for other things you need or for your retirement.
Lets say you don't care about retirement, but you are renting a 2 bedroom apartment alone. If you can find someone to pay 50% of your rent to stay in the other room, you could save the other half for emergencies, for a vacation (instead of using the credit card), to buy your own place in cash eventually, or perhaps for that large screen 3D LED/LCD TV you've been drooling over. Sure it might take a few months or more to pay for that television in savings, but the point is that sharing makes financial sense.
I am happy to report that two days ago after a month of asking friends in Facebook, MSN, etc. if they know of anyone who wants to share, a friend let me know of two best friends needing a place to stay. They'd prefer separate rooms, but for the moment they can share. I gave a price of rent plus general expenses to cover bills plus cleaning supplies, toilet paper, and stuff like that. NO, I won't make any profit on this. Any extra money after paying bills and other general apartment expenses I'll set aside for things requested.
Last night after their first night here, one suggested getting a washing machine. That really wouldn't be a bad expense since I hate washing by hand and a washing machine would pay for its self in 12-15 months including the extra cost of electricity, water and detergent. I didn't want to get one because I didn't know if I'd even still be living here in 2-3 months, but since I'll be signing a contract for a year and finally have people in the other room, I might just go for it if I can find a machine that isn't more than 4000 pesos. It would eat my extra savings the first month, but I'd save about 350 pesos each month by not dropping of my clothes to be washed every week. How much would I save with a full house of roommates using a washer? Probably not much, but if each pays 100 pesos more in their rent, that would cover the extra utilities and everyone would be happy. They'd save money and so would I.
What's next for me? I know I spend too much on food, but what I'd really like right now is to find a roommate to share my bedroom with. I'd probably spend 1 or two month's in savings just getting my essential stuff organized to make room for someone else, but later I'd have an extra 633 pesos each month for saving or again for whatever I want. Plus, I really like sharing with others as long as they are not noisy and are responsible. I'm really not sure if I'll put up an advertisement for sharing my room, but if anyone asks I'll be sure to mention the opportunity!
How is my financial freedom situation different from others online? I make very little money compared to most I see in forums online. I'm not an engineer or physicist or any other high paying occupation. I work freelance so my income is irregular, I just need to sacrifice more in spending. What someone in USA considers bare-essentials seems very luxurious to me with their car, whole apartment and budget that includes clothing and other extras. I'm a shy extrovert. I like being with good people so even sharing my own room would be good. If you are introverted, find another introvert for your OTHER bedrooms. Since both of you will need more alone time, you'll discover you'll chat for a few minutes and be in your bedrooms most of the time you're at home!
If you are lucky enough to have a good steady income, take advantage of the opportunity to have roommates and save money for your future. If your extra rooms and garage are full of stuff you haven't touched for at least a year, plan a garage sale, sell it on E-bay, or just donate that stuff to Goodwill!
Tuesday, May 22, 2012
Saving and Investing are essential for a volatile future
I wrote in previous posts about saving money for emergencies and for financial independence which could eventually become early retirement, but today I want to share some thoughts about change.
It is important to think beyond monthly expenses and just think about all the what-ifs. What if you lose your job tomorrow? What if there is a disaster and your home is damaged? What if there is a plague or severe drought and food prices double for a few months?
How adaptable are you? If one of the above occurred today, would you survive?
If you depend on your job for survival, it is essential that you start your emergency fund (cash) right away. If you lost your job today, you'd need money for food, rent, and essential bills for as long as it takes you to find a new job. You might need to take a course to learn new skills or get a new certification first. If you know where the market is going, have enough savings to cover those expenses and time. You want to have at least 3 months of expenses covered in your emergency fund. See my earlier post on that topic to estimate how many month's you'll probably need to set aside (typically 3-12 months) Once you go beyond 6 months, it makes more sense to put the money in Certificates of Deposit or other investments since if you have an emergency you'd first spend your cash savings and then you could plan to convert investments to cash with little penalty (as the CDs expire, etc.)
Of course if you don't have very expensive things the second scenario isn't terribly important if you have savings available to replace your stuff. However if your savings is limited or you have a priceless collection, it is time to investigate the cost of having home owner or renter insurance. If you can replace what you have with the money you'd have spent in 1-3 years of premium payments, it would make more sense to me to just save more money for emergencies. If your house is made of wood then I'd understand the need for insurance for fire damage. If your house is built on a flood plain then you should either sell it or get flood insurance since a flood could destroy everything very easily.
In the case of plague or drought, there are several things you could do. First, if you have the space you could always have one or two months of long lasting food which you actually normally cook and eat. Lentils, beans, rice, pasta, oats, and canned goods are normally good for months to years. Be sure to only buy what you eat though. It is also nice to have extra staple food in case you have a financial emergency. You could just eat the extra food and spend less on food until the emergency is over. If you eat one kilogram of rice a month, buy a couple extra bags, use the oldest bag and buy another bag when you go shopping.
This could also work for other basic things you use like shampoo, deodorant, toothpaste and soap. Buy more basic goods that you use when on sale, but don't buy more than you'll use before the expiration date, and don't buy more than you have space to keep them (and keep them organized)
The typical suggestion of saving 10% of your income is not realistic unless you spend a high % on insurance which is of course money you'll never get back. 10% of your net income probably will only cover retirement at age 65 if you start in your 20s and you never have an emergency or lose your job in all that time. That is NOT very likely. Most people will have many jobs in their lifetime and company paid pensions are a think of your grandparents' generation.
Don't forget that most things especially electronics and appliances don't last forever. All those things that make life easier could break down. Repairs and replacements are not free! It wouldn't be a bad idea to set aside 10% of your income for a repair and replacement fund. If you don't use it by the end of the year, you could put the money into your retirement fund investments or use it to save for a house or use it to pay down your mortgage loan early.
It is essential to be prepared for what you can't anticipate. Save at least 30% of your net income (take come money) and you'll have at least some level of safety.Save 50% for a year and you'll have enough money to live off of for another year, but don't stop there. Life is about more than an emergency. Keep it up and you'll eventually be prepared for almost anything including early retirement. (many people have to stop working long before 65 due to health reasons so don't just plan on working until you die!)
It is important to think beyond monthly expenses and just think about all the what-ifs. What if you lose your job tomorrow? What if there is a disaster and your home is damaged? What if there is a plague or severe drought and food prices double for a few months?
How adaptable are you? If one of the above occurred today, would you survive?
If you depend on your job for survival, it is essential that you start your emergency fund (cash) right away. If you lost your job today, you'd need money for food, rent, and essential bills for as long as it takes you to find a new job. You might need to take a course to learn new skills or get a new certification first. If you know where the market is going, have enough savings to cover those expenses and time. You want to have at least 3 months of expenses covered in your emergency fund. See my earlier post on that topic to estimate how many month's you'll probably need to set aside (typically 3-12 months) Once you go beyond 6 months, it makes more sense to put the money in Certificates of Deposit or other investments since if you have an emergency you'd first spend your cash savings and then you could plan to convert investments to cash with little penalty (as the CDs expire, etc.)
Of course if you don't have very expensive things the second scenario isn't terribly important if you have savings available to replace your stuff. However if your savings is limited or you have a priceless collection, it is time to investigate the cost of having home owner or renter insurance. If you can replace what you have with the money you'd have spent in 1-3 years of premium payments, it would make more sense to me to just save more money for emergencies. If your house is made of wood then I'd understand the need for insurance for fire damage. If your house is built on a flood plain then you should either sell it or get flood insurance since a flood could destroy everything very easily.
In the case of plague or drought, there are several things you could do. First, if you have the space you could always have one or two months of long lasting food which you actually normally cook and eat. Lentils, beans, rice, pasta, oats, and canned goods are normally good for months to years. Be sure to only buy what you eat though. It is also nice to have extra staple food in case you have a financial emergency. You could just eat the extra food and spend less on food until the emergency is over. If you eat one kilogram of rice a month, buy a couple extra bags, use the oldest bag and buy another bag when you go shopping.
This could also work for other basic things you use like shampoo, deodorant, toothpaste and soap. Buy more basic goods that you use when on sale, but don't buy more than you'll use before the expiration date, and don't buy more than you have space to keep them (and keep them organized)
The typical suggestion of saving 10% of your income is not realistic unless you spend a high % on insurance which is of course money you'll never get back. 10% of your net income probably will only cover retirement at age 65 if you start in your 20s and you never have an emergency or lose your job in all that time. That is NOT very likely. Most people will have many jobs in their lifetime and company paid pensions are a think of your grandparents' generation.
Don't forget that most things especially electronics and appliances don't last forever. All those things that make life easier could break down. Repairs and replacements are not free! It wouldn't be a bad idea to set aside 10% of your income for a repair and replacement fund. If you don't use it by the end of the year, you could put the money into your retirement fund investments or use it to save for a house or use it to pay down your mortgage loan early.
It is essential to be prepared for what you can't anticipate. Save at least 30% of your net income (take come money) and you'll have at least some level of safety.Save 50% for a year and you'll have enough money to live off of for another year, but don't stop there. Life is about more than an emergency. Keep it up and you'll eventually be prepared for almost anything including early retirement. (many people have to stop working long before 65 due to health reasons so don't just plan on working until you die!)
Monday, May 21, 2012
The Joy of using cash for spending
When I look back on the last 12 years of my life I see that many things I didn't need were bought with a debit card and some where bought with a credit card. You might not find that to be significant, but it really is.
Everytime I wanted something and had a debit or credit card available, I could purchase without thinking and then I'd have something that would make me happy for a few days to a few weeks or perhaps it was something I consumed in the moment otherwise it would end up in the clutter with all the other stuff I had accumulated.
I wouldn't want to get rid of it right away because I just spent money on it. That's how it usually works for most of us. It made us happy in the moment, but now we need to find a space to put it, something to put it in, or we have to take time to clean or maintain it.
Yeah, it seems the more stuff we have, the less money we have and the more money we spend. That's why living on cash is easier when you have a budget.
How do I do it? First you have to keep a budget. I recommend following something like the 60% solution on MSN (basically no more than 60% regular expenses, 10% entertainment, and 30% savings (10% short term, 10% long term, 10% retirement). Once that gets easy you can start increasing your savings to a decent level. 50% savings would be good for most people, but if you haven't kept and followed a budget before, 30% will seem huge and impossible at first. I lived on the 60% budget for almost a year before deciding to start my extreme retirement or financial independence journey.
Once you have your budget and cash your check, separate into envelops or piles the money for that month's rent (or better yet the next month's rent), entertainment, and daily spending money for that period. If you are paid weekly then separate daily expenses and entertainment for that week only. Before you leave work or the night before separate the money you need to survive that day and put it in your billfold. If you spend less, you can keep it for another day. If you spend less everyday, adjust your daily expenses down a little in the budget and put the rest back into savings. Don't spend more than you budgeted + left over funds from other days. If your budget is $10 a day in transportation, food, and misc. don't spend more. In fact, don't put more than your daily allowance in your pocket. Keep the rest locked away in a safe place where it won't get stolen.
Don't make a point of spending it all either. When you make a purchase ask yourself if you really need it or if there is an alternative. Could you cook at home today instead of going to the restaurant? Could you cook one day and bring the left overs to work the next day or two for lunch?
Once you get used to using cash for every day expenses using this method, you'll break the debit & credit hard habit, you'll spend less on things, food, and bank fees!
Everytime I wanted something and had a debit or credit card available, I could purchase without thinking and then I'd have something that would make me happy for a few days to a few weeks or perhaps it was something I consumed in the moment otherwise it would end up in the clutter with all the other stuff I had accumulated.
I wouldn't want to get rid of it right away because I just spent money on it. That's how it usually works for most of us. It made us happy in the moment, but now we need to find a space to put it, something to put it in, or we have to take time to clean or maintain it.
Yeah, it seems the more stuff we have, the less money we have and the more money we spend. That's why living on cash is easier when you have a budget.
How do I do it? First you have to keep a budget. I recommend following something like the 60% solution on MSN (basically no more than 60% regular expenses, 10% entertainment, and 30% savings (10% short term, 10% long term, 10% retirement). Once that gets easy you can start increasing your savings to a decent level. 50% savings would be good for most people, but if you haven't kept and followed a budget before, 30% will seem huge and impossible at first. I lived on the 60% budget for almost a year before deciding to start my extreme retirement or financial independence journey.
Once you have your budget and cash your check, separate into envelops or piles the money for that month's rent (or better yet the next month's rent), entertainment, and daily spending money for that period. If you are paid weekly then separate daily expenses and entertainment for that week only. Before you leave work or the night before separate the money you need to survive that day and put it in your billfold. If you spend less, you can keep it for another day. If you spend less everyday, adjust your daily expenses down a little in the budget and put the rest back into savings. Don't spend more than you budgeted + left over funds from other days. If your budget is $10 a day in transportation, food, and misc. don't spend more. In fact, don't put more than your daily allowance in your pocket. Keep the rest locked away in a safe place where it won't get stolen.
Don't make a point of spending it all either. When you make a purchase ask yourself if you really need it or if there is an alternative. Could you cook at home today instead of going to the restaurant? Could you cook one day and bring the left overs to work the next day or two for lunch?
Once you get used to using cash for every day expenses using this method, you'll break the debit & credit hard habit, you'll spend less on things, food, and bank fees!
Friday, May 18, 2012
Decluttering can save you time and money
I have always been a collector. I remember in elementary school I collected stickers, In junior high, I had my cassette tape collection (yeah I'm showing my age. CDs were expensive when I was in high school! and my first CD Player was stolen at school though I never reported it). Anyway, although not an extreme pack rat, I know that I've always had the tendency to collect and keep stuff.
I'd always justify keeping something when I'd do my spring cleaning. I'd say, "but I 'm sure I'll use it later." and surprise the next year I'd say the same think even though I never used it all that year.
I'm trying to improve, but it is hard to go against nature. I really believe that the collecting tendency or desire is genetic like so many other behaviors. I remember my Mom still had her old record collection in her bedroom. I can't remember her ever playing them when growing up.
Unfortunately if you have a lot of stuff, you need a house or room big enough to store it all. You also need the storage supplies (shelving, book cases, boxes, etc.) to put everything in. Additionally you need some kind of organizational system and labeling so when you actually need something you know where to find it or your spend hours or even days looking for it. How many middle class family garages are full of storage while the cars are parked on the street? That's serious clutter!
Unfortunately if you have a lot of stuff, you need a house or room big enough to store it all. You also need the storage supplies (shelving, book cases, boxes, etc.) to put everything in. Additionally you need some kind of organizational system and labeling so when you actually need something you know where to find it or your spend hours or even days looking for it. How many middle class family garages are full of storage while the cars are parked on the street? That's serious clutter!
Another thing I've learned about myself over the years is that I'm very much out-of-sight, out-of-mind. What I mean is that if something is stored in a box or some other container I can't look into without opening, I forget I have it. Perhaps I would have used it sometime during the year, but I didn't because at the time I had forgotten I had it.
Since I share an apartment, I try to keep most of my stuff in my bedroom. That means that I have my large plastic containers stacked and on top of other things. One container is on top of my file cabinet. Another box is on top of my armoire/wardrobe, and I have two stacks (3 and 2) along the back wall of my room.
I have my desk, a tall book case, and another piece of furniture (about the size of a dresser but with shelves instead of drawers) for storing stuff. Most, but not all of my clothes fit in my wardrobe when folded correctly. My wardrobe isn't very big. I have quite a few small boxes with CDs (games and backups)
When I moved in December 2011, I stared my efforts to remove the clutter. I realized that in just the last few years my collection of stuff had expanded out of control. I got rid of half my clothes (mostly worn out stuff) and at least half of my books.
I was quite proud of myself to have gotten rid of all that, but I still needed to rent a moving truck mostly for boxes of stuff. I really don't have that much furniture.
Now, only a few months later, I got the bug to remove more clutter. I guess you'd say that my clutter is pretty normal, but I'm in a small space so my room always looks like a mess.
This weekend I went through my file cabinet and got rid of some papers and at least one small box worth (probably 2) of stuff. There was an old wireless router, a bunch of cables, wires and adapters for only God knows what, and misc. stuff that I'll never use again like two checkbook holders. I haven't had checks for at least 5 years, but I brought the holders with me on the last two moves. No, they don't take up much room, but you could say that about a lot of stuff. Believe me, I've used that same excuse many times.
I then went on to boxes of stuff. In my CD boxes I found many old software application install CDs for some very old versions. I'll never use those again. The shoe box I keep them in was almost full. Now it is half empty!
One of my large plastic containers had my extra hanging folders for my file cabinet. With the extra room I got by throwing out the junk from the file cabinet, I found the space to keep the extra folder boxes in one of the drawers. Now that large plastic container is empty.
I found quite a few books that were out-of-date or warn out. They'll go in the trash if I can't find a way to recycle them. I decided to keep almost half of my books and now they are all on ONE shelf of my book case. Just last year they would have taken almost the entire bookcase.
I later went through my other boxes and shelves. I didn't do a 100% job, perhaps next weekend I'll finish, but I was able to put some tote bags of stuff that were on the floor on a shelf that was completely packed and disorganized.
I've rediscovered a few binders and notebooks that were almost unused or had stuff I don't want anymore so I got rid of what they contained. I just need to decide if I want to keep or give away the binders. Just a year or two ago I went to the store to buy a binder because I thought I didn't have any!
How does this incredibly long post relate to early retirement and financial independence? Well, if I had remembered that I had binders with junk in a box I could have saved the time and money I had spent on a new one.
Additionally, things that are improperly stored are more likely to wear out or break. Of course if things are packed away you lose time trying to find them if you even remember you had them at all. Time is money. If you are efficient, you get more done!
Most importantly, the less stuff you have, the less space you require to live. That means you could live in a smaller house or smaller apartment or share an apartment before all your clutter took up the extra room. If you want to go really extreme, share your bedroom with a friend that you can trust. The cost of bunk beds or a loft for one or both beds will probably be less than what you save in two months. Rent is the largest fixed monthly expense for most people. Save a lot of money by downsizing to a smaller home and put that money toward saving and debt reduction.
Even if you prefer living alone in a one bedroom apartment, you'll save more on moving costs (smaller truck), and you'll save time packing and unpacking.
Thursday, May 17, 2012
Sometimes you need to increase income to reach very early retirement
Being frugal is sometimes not enough for extremely early retirement (or financial independence)
Extremely early retirement is possible through frugal living, but it is also important to have a decent come to let you save up fast. If you only make what counts for minimum wage in your country, even a high percentage isn't much money and who wants to live on a completely bare-bones depression budget? We should live off of the basics, but not suffer to get by.
To me frugal is to only spend on what you need to be healthy, happy, and comfortable over the long term. I don't need to have a night at the cinema to be happy. At least I don't need that more than once a month (or perhaps once every two months.
I do however need to eat a variety of vegetables on a regular basis. If I don't eat my veggies, I feel bad and lethargic. I know that if I only ate the cheapest vegetables I'd spent a little less on food, but it would cause a large decrease in happiness compared to the savings of perhaps 30-40 pesos per week.
Being frugal is also not buying on impulse or getting something just because it is cool, trendy, or what all your friends have. It is living without spending a lot of money on entertainment.
Having said that, we all have to eat, pay for a place to live, and clothes to wear. Unless you have a several thousand dollar a month income or live for free with your parents, it will be difficult for you to save the 80% of income needed to retire in about 6 years. saving 80% spending 20% withdrawing 4% annually 6.25 =25/(0.8/0.2).
The less you save the longer it will take you to reach your very early retirement savings goal. I was a little disappointed to see that at my current 50% savings (about 40% more than your typical earthling), It will take me about 25 years according to the formula. 25 =25/(0.5/0.5) If I were in my early 20s that would be fine, but I'm almost 36 years old and I want to retire in my mid 40s so I need to make a plan to increase that percent!
If I go from 50% to 60% (which would either mean packing my sandwich or rice with vegetables or eating at home everyday and perhaps washing my clothes by hand), It will take me about 17 years. That's still too long for me.
The only solution is to live frugally and increase income. The more I make while maintaining my expenses at the current (frugal, but no suffering) level, the more I will save (the higher the percent for savings).
At 70% savings, I can retire at almost 11 years. That's not bad. It is one year more than I'd like, but I am actually planning on working on my artwork so I could sell a few paintings and digital artwork and sell some graphic design. I very much doubt that Print-on-Demand websites will go away so I won't have to live 100% off my savings. I might go into semi-retirement after 8 years if I can build a small or tiny house in the country and have a garden, internet, and a solar water heater. It is hard to say since I only recently thought of the idea. It would be fun to have a couple years dedicated to creating art and design to survive on and live simply. Sometimes being a teacher with a full schedule can be stressful.
Now that I know I need to increase my income and live simply to reach my retirement goal, the next step is to find ways to increase that income. Do I want to find another job? Perhaps I could blog for someone else or write a book? I could put extra time into creating great graphic design. I could try to find more translation work. It is stressful, but a long translation could mean a lot of income if I could find someone who needs that help. I could also raise prices for English classes, but that also will increase the possibility that people will cancel when they have unplanned expenses.
Extremely early retirement is possible through frugal living, but it is also important to have a decent come to let you save up fast. If you only make what counts for minimum wage in your country, even a high percentage isn't much money and who wants to live on a completely bare-bones depression budget? We should live off of the basics, but not suffer to get by.
To me frugal is to only spend on what you need to be healthy, happy, and comfortable over the long term. I don't need to have a night at the cinema to be happy. At least I don't need that more than once a month (or perhaps once every two months.
I do however need to eat a variety of vegetables on a regular basis. If I don't eat my veggies, I feel bad and lethargic. I know that if I only ate the cheapest vegetables I'd spent a little less on food, but it would cause a large decrease in happiness compared to the savings of perhaps 30-40 pesos per week.
Being frugal is also not buying on impulse or getting something just because it is cool, trendy, or what all your friends have. It is living without spending a lot of money on entertainment.
Having said that, we all have to eat, pay for a place to live, and clothes to wear. Unless you have a several thousand dollar a month income or live for free with your parents, it will be difficult for you to save the 80% of income needed to retire in about 6 years. saving 80% spending 20% withdrawing 4% annually 6.25 =25/(0.8/0.2).
The less you save the longer it will take you to reach your very early retirement savings goal. I was a little disappointed to see that at my current 50% savings (about 40% more than your typical earthling), It will take me about 25 years according to the formula. 25 =25/(0.5/0.5) If I were in my early 20s that would be fine, but I'm almost 36 years old and I want to retire in my mid 40s so I need to make a plan to increase that percent!
If I go from 50% to 60% (which would either mean packing my sandwich or rice with vegetables or eating at home everyday and perhaps washing my clothes by hand), It will take me about 17 years. That's still too long for me.
The only solution is to live frugally and increase income. The more I make while maintaining my expenses at the current (frugal, but no suffering) level, the more I will save (the higher the percent for savings).
At 70% savings, I can retire at almost 11 years. That's not bad. It is one year more than I'd like, but I am actually planning on working on my artwork so I could sell a few paintings and digital artwork and sell some graphic design. I very much doubt that Print-on-Demand websites will go away so I won't have to live 100% off my savings. I might go into semi-retirement after 8 years if I can build a small or tiny house in the country and have a garden, internet, and a solar water heater. It is hard to say since I only recently thought of the idea. It would be fun to have a couple years dedicated to creating art and design to survive on and live simply. Sometimes being a teacher with a full schedule can be stressful.
Now that I know I need to increase my income and live simply to reach my retirement goal, the next step is to find ways to increase that income. Do I want to find another job? Perhaps I could blog for someone else or write a book? I could put extra time into creating great graphic design. I could try to find more translation work. It is stressful, but a long translation could mean a lot of income if I could find someone who needs that help. I could also raise prices for English classes, but that also will increase the possibility that people will cancel when they have unplanned expenses.
Wednesday, May 16, 2012
I want to retire in 10 years when I'm almost 46
Last Thursday, I was talking to a student who owns a small accounting firm. I've had conversation classes with him off and on for probably 7 years. We typically meet once a week.
I'm not sure how exactly, but we got into a conversation about the future. His plan is to have his big house to enjoy with his family in a good neighborhood and live well. He loves his work, but he plans on stopping around the age of 60 or perhaps late 50s or at 65 depending on how things go. I think he has a great plan since he loves his work. I don't think there is a right or wrong as long as you have a plan that will meet what you need and want out of life.
I told him something that surprised him. He shouldn't have been surprised. You'd think he wouldn't be that surprised, but I saw a shocked look on his face for a few seconds. I told him that I want to retire in 10 years.
We started to discuss the numbers since accountants need to see the numbers to fully relate to the concept. We decided that saving an average of 8000 pesos a month would probably be enough to get by with minimal expenses since I'd make interest which would compound and of course I don't have any children to take care of or a mortgage to pay for.
The next question was what I would do if I retired in ten years. He understood my answer although he couldn't really relate. I told him that I'd travel off and on. I'd love backpacking and staying at hostels and meeting people and trying new things and taking photos and all that. I don't want to wait until I'm old to experience that. If you wait until you're 65 to enjoy your retirement, you'll probably only have a few more years of good health to actually travel and do all that. You'll probably live into your 80s if you don't get sick, but most people die in their 80s and have not-so-great health in their 70s. I want to be able to enjoy a few decades of travel, discovery, trying new things, and spending time with friends and loved ones BEFORE I get that old.
If I had the same awareness 10 years ago, I would have planned to retire sooner, but I wasn't mature enough in my 20s to take the decision to save a high percent of my income skipping some immediate pleasure to have it years from now. I suppose most of us think that we have decades more before we should even think about it. I think that after reading the typical advice of working and saving 10% and retiring when you are too old to fully enjoy it wasn't very motivating to me. To retire early, you need to save a very high percent of your income and invest it, but I NEVER saw any popular personal finance adviser recommend it. I always read to save 10% and have an emergency fund and just keep working until you're old and hopefully have paid off your huge mortgage on the big house.
Yet, I think the problem is really how I define retirement. Retirement for me is NOT sitting on the balcony bored watching people walk by and watching some television. To me retirement will be living simply, gardening if I can find the space, learning and growing as a person, and getting inspired and helping others when I can without being taken advantage of.
I don't plan on not working at all. I plan on working part time when I feel like it not working because I have to because I need to pay the rent and bills. Perhaps I'll teach one group or become a writer. I might decide to study in a study from home using the internet for a university degree. I might take some painting or drawing courses or learn something completely new.
Retirement for me is financial independence. The ability to choose what you want to do or not do on your own terms.
I'm not sure how exactly, but we got into a conversation about the future. His plan is to have his big house to enjoy with his family in a good neighborhood and live well. He loves his work, but he plans on stopping around the age of 60 or perhaps late 50s or at 65 depending on how things go. I think he has a great plan since he loves his work. I don't think there is a right or wrong as long as you have a plan that will meet what you need and want out of life.
I told him something that surprised him. He shouldn't have been surprised. You'd think he wouldn't be that surprised, but I saw a shocked look on his face for a few seconds. I told him that I want to retire in 10 years.
We started to discuss the numbers since accountants need to see the numbers to fully relate to the concept. We decided that saving an average of 8000 pesos a month would probably be enough to get by with minimal expenses since I'd make interest which would compound and of course I don't have any children to take care of or a mortgage to pay for.
The next question was what I would do if I retired in ten years. He understood my answer although he couldn't really relate. I told him that I'd travel off and on. I'd love backpacking and staying at hostels and meeting people and trying new things and taking photos and all that. I don't want to wait until I'm old to experience that. If you wait until you're 65 to enjoy your retirement, you'll probably only have a few more years of good health to actually travel and do all that. You'll probably live into your 80s if you don't get sick, but most people die in their 80s and have not-so-great health in their 70s. I want to be able to enjoy a few decades of travel, discovery, trying new things, and spending time with friends and loved ones BEFORE I get that old.
If I had the same awareness 10 years ago, I would have planned to retire sooner, but I wasn't mature enough in my 20s to take the decision to save a high percent of my income skipping some immediate pleasure to have it years from now. I suppose most of us think that we have decades more before we should even think about it. I think that after reading the typical advice of working and saving 10% and retiring when you are too old to fully enjoy it wasn't very motivating to me. To retire early, you need to save a very high percent of your income and invest it, but I NEVER saw any popular personal finance adviser recommend it. I always read to save 10% and have an emergency fund and just keep working until you're old and hopefully have paid off your huge mortgage on the big house.
Yet, I think the problem is really how I define retirement. Retirement for me is NOT sitting on the balcony bored watching people walk by and watching some television. To me retirement will be living simply, gardening if I can find the space, learning and growing as a person, and getting inspired and helping others when I can without being taken advantage of.
I don't plan on not working at all. I plan on working part time when I feel like it not working because I have to because I need to pay the rent and bills. Perhaps I'll teach one group or become a writer. I might decide to study in a study from home using the internet for a university degree. I might take some painting or drawing courses or learn something completely new.
Retirement for me is financial independence. The ability to choose what you want to do or not do on your own terms.
Tuesday, May 15, 2012
Personal expenses Spring 2012
Here is a glimpse at my current expenses while working and my thoughts regarding current spending levels in each area. It will vary a lot, but you'll notice that compared to the typical person from the USA, I live in extreme poverty, yet for here, I'd probably be considered lower middle class. If I only lived with a working significant other I'd live better. Single without children living is more expensive than married without children because of having to find a roommate and you can't expect them to share all the costs only rent and basic utilities. You also never know when they'll move out and you'll have to pay more and find someone else or move to another place. Remember everything is in pesos!
I can adapt pretty easily and when I make nothing I'm good at cooking at home and walking everywhere and washing clothes by hand. When I work a lot my expenses go up a lot, but at least I can save money when I work.
I've saved 20,000 in the bank for emergency living expenses and put half in a certificate of deposit to get some interest for 90 days. Interest bearing accounts have really high minimum balances here. So now I'm starting my investing phase. I'm depositing money to my AFORE which is an independent retirement account that invests mostly in bonds and gets around 6-7%. I can't select investments the bank decides based on age groups. I can only withdraw money (any voluntary contributions) once every 6 months so it is good place to put medium to long term investments.
Rent 1267
(sharing 3 bedroom cheap apartment with 2 others) I don't think I could find cheaper near a subway station without moving to a neighborhood known for armed robbery.
Food 3000
This is one I'm working on because when I don't work this drops down to 1000 pesos. (when I don't work I cook and people think I'm vegetarian since I cut back on meat then too.)
I'm trying to get it down to 2000 while working a lot. 3000 a month is basically 100 a day (9 dollars a day +/- goes by so fast even buying food sold on the street and a soda.) I'm going home to eat between classes now twice a week and other days perhaps I can pack sandwiches or something)
Transport 1500
I teach in 3 different places right now. Atizapan (Northwest), Polanco (west-central), and Roma Norte. (almost central) I can't move near classes because 1. those areas have MUCH higer rent (perhaps 8,000 in Roma Norte, perhaps 16,000 in Polanco, and 3,500 in Atizapan) and in anycase if I lived near one I'd be far from the others and who knows when someone will ask for classes in some other part of the city.)
I take the metro (subway) and buses everywhere. It averages out to about 50 pesos a day mostly bus cost since the subway is partially funded by the state and the bus to Atizapan where I currently teach most classes is full price. If I stopped working I probably would not go there very often.
Internet 210
It is a good connection and I use it everyday when at home. I use it to communicate with family and friends and of course to check the sites where I upload artwork and designs.
When I'm financially independent I plan on just doing art and graphic design.
Cell 300
I'm on a two year contract. It is one of the cheapest plans I could find that would give me enough text messages and internet. I only get one hour call time, but I normally use its internet to send messages on facebook or whatapp. I had canceled the telephone service here since the roommates didn't want to help with the bill like they had agreed.
Laundry 400
I could wash by hand. I was working on decluttering this weekend, but we'll see. I notice that clothes wear out faster when I wash by hand even though I save on cleaning cost.
Supplies 500
stuff for creating artwork, personal care products, DVDs for backing up artwork, etc. normally 300-600 pesos.
Electricity 100
approx. it is actually a bill that comes every other month and split three ways. Electricity costs vary by usage and neighborhood. Poor areas pay less. Expensive areas like Polanco pay full cost. One of my roommates has the bill and he hasn't shown it too me and he's been at his parents' house all week. I'm worried that he's going to move back home.
Natural Gas 100
Here you buy tanks of gas of different sizes and it depends on how often you cook and if you keep your water heater on hot, warm, or off between baths.
We actually don't have a tank connected to the water heater so I've been showering in cold water. I've done that off and on for years. It isn't enjoyable at all, but it is tolerable.
If I had my own house I'd install a solar water heater and panels, but you can't do that when you rent.
In total I am currently spending about 7,500 pesos a month on the basics + laundry, cell, and internet.
Since I want to retire or be financially independent, saving 10-20% of my income isn't enough. It is essential that I reduce costs as much as possible while working. Ideally, I'd save at least 50% every month.
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