5.18.2006

Aggressive Savings

Lately I've been thinking about what age I'll be able to retire. Here's how it breaks down. This November I hope to start a job as a police officer. The pay for year one starts at 48k and increases rapidly to 60k at the end of the 3rd year. Then there are slow increases after that of 1-3 thousand per year. I want to save every dime. Now, of course that's impossible. But I'd like to save ~50k/year on average until I can retire.

These are all back of the envelope, day-dreaming in the park numbers but it's a start and a vision, here we go:

Obviously I can't save 50k a year the first year if I only make 48k from my job. Unless, that is, I have another income. There are various income streams I've been speculating with. Particularly some software programs. I'm quite particularly interested in seeing if I can sell the budgeting program I'm currently using that I programmed for myself. With some mild improvements over the next six months it's something that might be able to easily make me 3k-12k/year. With that kind of money I just might be able to save 50k/year.

So ultimately what I'm doing is thinking about what kind of life I'll have to live over the next 5-8 years in order to be able to save 80% of my income. The goal in my mind right now is to be able to live comfortably off of $1,000/month and being able to save the rest.

I'll start by looking at my current monthly spending:
Rent: $375
Phone: $15
Internet: $60
Webhosting: $25
Netflix: $50
Food: $150
Transportation: $25
Total: $700


Here's how I would like it to look in one year:
Rent: $410 (utilities paid)
Phone: $9
Internet:$32
Webhosting:$3
Netflix:$30
Food: $175
Transportation: $25
Clothes: $40
Entertainment: $50
Electronics: $50
Charity: $50

Total: $874
Which leaves $126/month to be stowed away for unforeseen expenses.
The rest of my monthly income will be saved and invested.

The question is, will I be able to maintain that lifestyle for, if necessary, 8 years? Especially considering that a better lifestyle would simply be a matter of redirecting a few funds? I think I can. I think I want to be independently wealthy so badly that I would put up with almost anything so long as I knew it were temporary.

-Rent- A studio apartment has been just fine for the past six months and I don't feel cramped or bothered by it at all.

-Phone- I wouldn't even have a phone if it weren't for the looks I would get from my prospective employers when I told them I don't have one. I don't mind using free/cheap phone services over the Internet (skype.com) even though it's slightly less convenient than having a $45/month cell phone.

-Internet- I don't think I could do without broadband, it adds so much to my life, not to mention often-times a revenue stream and it allows me to use cheap internet phone service.

-Netflix- This is sort of my substitute for most people's 'cable bill'. Netflix/Video games I would argue actually make my life cheaper. On the weekends I have a good alternative for relaxing other than going to the bar and spending $20-40/night on drinks/food. If a long weekend or vacation comes up instead of spending $3,000 on a trip I can look forward to a marathon of video gaming, smoking, drinking a noshing with friends.

-Food- Food I could definitely get cheaper than $175 but I just don't want to. Sure I could probably live off about $12/month if I ate mostly grains but I just don't think it's worth the sacrifice in this instance. That would be something that would actually make me feel poor. Despite how little I make now or how little I will live off in the future I always feel rich when I drink fresh milk, eat fresh meat or fruits or open the freezer and see some high-quality ice cream.

-Transportation- Thankfully I'm quite a public transit enthusiast so I don't have to budget an absurd $300/month for a car payment, insurance, maintenance, repairs and gas. I simply pay $1 from time to time or just walk to the grocery or library. I have a 250cc motorcycle that I fill up about once a month with $8 of gas and I pay a once annual $120 for insurance. I do the maintenance myself.

-Clothes- I'm the opposite of a clothes horse. My arm practically has to be twisted to get me to buy clothing. Still, I realize I need new shoes, shirts and pants from time to time as they do, unfortunately, wear out.

-Entertainment- My entertainment costs usually consist of a show at the 2nd run movies for one or two dollars or a few drinks at a bar with a friend. Occasionally museum/zoo/park admission fees which are all reasonable.

-Electronics- I do have a weak spot for computers. I like to play with them, build them, rearrange them, live with them.

-Charity- Helping others help themselves. What goes around comes around. Giving empowers you. Blah blah blah.

-Emergency Fund- I'll always keep a $1,000 emergency fund handy in case I need to fly home quickly, make bail, buy a new laptop, etc. Any unbudgeted money I don't spend in a month up to my $1,000 limit will go to making sure this is replenished. Then, when the emergency fund is full, to a *fun* fund.


My end goal with this aggressive savings would be an early retirement before I'm 35. Again, these are only back-of-the-envelope day dreams still. But just doing the long-division in my head, I'm guessing I'll need somewhere between $650-850k, plus the price of my residence (preferably a $<200k high-rise condo/apartment). So saving 50k a year at an optumistic but realistic 12.5% ROI:

Year 1: $56,250
Year 2: $119,531
Year 3: $190,722
Year 4: $270,812
Year 5: $360,913
Year 6: $462,277
Year 7: $576,311
Year 8: $704,599
Year 9: $848924 *GOAL

Now if I could start making 10k-30k/year off some software and saved all that as well it cuts it down to 6 years. If I up it to 15%; 5 years. With 848k I could, at a more modest 8% interest, be making 67k/year. I'd take 48k for living costs and give the rest to reinvestment and taxes. 48k (with no rent/mortgage) after living off $1,000/month with a rent/mortgage will feel like heaven. It'll be a full $4,000/month without rent and no job/obligations. I could then devote myself to writing, studying, some occasional travel, managing my portfolio, staying healthy, wine-making, programming, reading, writing music and on and on and on.

I know some will scoff at living off less than $4k/month and to them I say have fun working 30 years of your adult life in order to retire. I just don't like 9-5 work enough to be willing to do that. I also expect that, over time in my 'retirement' my income will increase through book sales, software sales, (pie-in-the-sky) album sales but as long as I have to work 9-5 to make the money, I'm content with 4k/month. Especially considering it'll probably always be just one person who I'm supporting.

So what would a $4,000/month ideal budget look like for me?

Condo Building Fees: $400
Home Maintenance/Upgrades: $150
Electric: $75
Water: $40
Gas: $60 (live on the sunny side of the building)
Internet: $30
Phone: $50
Electronic Gadgets: $200
Transportation: $250 (Still no car, but maybe some taxis :-)
Entertainment: $260 (Concerts, Theater, maybe 1 or 2 shows a month)
Eating Out: $400 (3 $125 meals, etc., ought to do me)
Food: $325
Travel Fund: $785 (Plush 4 day weekend every four months-ish)
Golf: $175
Miscellaneous: $300
Health Insurance: $200
Political Contributions: $150
Charity: $150

1 Comments:

Anonymous Anonymous said...

I see you posted this in 2006, how has that 12.5% return been working for you? seriously though you should never assume a return that high, especially over only a 9 year period which is short enough to allow even for negative returns (i.e. 2000-2009).

have you actually followed through on this plan?

10:34 AM  

Post a Comment

<< Home