FIRE
For the past few years, despite thinking I’ve been spending a lot of money at times, I’ve actually kept my spending to around $22K, excluding rent, despite living in the most expensive places in the U.S. If I move out into a cheaper living arrangement, then I can keep my expenses under $30K a year. Let’s assume for the sake of argument that if I get married, I’ll make the wife work to earn her share and if we have kids, then I’ll jump in part time to save for college expenses. Otherwise, I won’t do a thing. To determine whether I can retire early, I used a website called www.firecalc.com.
What is FireCalc, you ask? Well, after you enter in your variables (e.g., desired income, retirement assets, asset allocation, retirement date, life expectancy, etc.), it determines how much money you would have left assuming you started investing in various years. Basically, it runs your numbers through all of the historical data it has. Then it tells you the percentage of time periods you would have run out of money. If you are successful 100% of the time, chances are you won’t go busto.
So I can FireCalc using $200K as a starting point, with $70K in contributions a year for five years and a 75%/25% stock to bond allocation. My withdrawal rate is $30K. I need this money to last until I’m 60 and can start drawing down my retirement funds, which hopefully will be sufficiently large that I can live off of that from 60 onwards. I’m not sure about the last part though…
Here are the FireCalc results: Continue reading ‘FIRE’
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It’s Been A While…
Boy things have been picking up at work lately. But I’ve still got my mind on what’s important. My plans are not entirely set in stone yet though. I’ve been soliciting comments from people about my plan and the resounding feedback has been — why not work for a few years and retire? Since 80% of people have said this — not all of whom are drinking the middle-class striver Kool-aid — I’ve decided to think carefully about that approach. I’m starting to come around a little bit. But I really think this is due to my training of being able to delay gratification.
Right now, I have 8x annual expenses saved in cash. Another 4x annual expenses saved in retirement. Of course, these annual expenses apply only to me. Not to a wife or kids…yet. In order to safely retire, I’d need 25-35x annual expenses. Since I don’t plan on vegging out entirely (my plan to start my venture is now a part-time gig), I think I can be safe and shoot for the lower limit of 25x. I still plan on moving out to a cheaper place at the end of my lease. This means I go from saving 2x annual expenses a year to 3x annual expenses a year.
So I need 25x to last me until 59 1/2 and hopefully by then my retirement accounts will have grown to a point where I can live off those savings at that time. I’m short 17x. If I go another 5 years at 3x a year, then I’ll basically overshoot the 25x assuming I get a decent return. Hey I might start getting raises again and that 5 years might be 3-4 years. Who knows?
*sigh* This is probably the most prudent course of action. Although, if my side venture takes off, I will be more comfortable quitting.
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I’ve been doing a lot of analysis of my spending. For example, from 10/14/2009-11/14/2009 I spent $3,719, whereas from 10/14/2008-11/14/2008 I spent $4,680. Over a year, that’s saving almost $12,000! From the looks of it, in that month in 2008, I spent $700 in clothing and ate out a lot. That’s paying the same rent of about $2,400/mo.
In the last two and a half years (basically all the financial data I have available), I spent around $145,000, which works out to $58,000 a year on average. That’s not bad considering what big firm attorneys are paid, but it’s too much if you’re not making any money. For the last year, I spent $54,000. (I only made a concerted effort to reduce spending in the last month or two.) Even $54,000 works out to $4,500 a month, so the $3,719 I spent last month was well below the average. Getting rent to $600/month will really save my ass. (That $54,000 drops to $32,400.)
Oh, and I wanted to recommend a website I discovered today. It’s for those of us who want to invest in the market, but feel like we don’t know enough to take the dive, especially in a market like this one where half of the investors are calling for Dow to 15,000 and the other half are expecting a financial Armageddon. The website is called Covestor.com and you can follow professional traders (i.e., see their portfolio, trades, and record) and optionally automatically make the same trades they make. I haven’t linked my brokerage account yet (still trying to get a feel for it), but it seems legit. Plus, it’s supposedly free (for now).
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One Foot Out the Door
I’ve made a lot of progress in getting the wheels greased for my personal venture. I am very excited about it. To keep the blog truly anonymous, I will not say further what I will be getting involved in. I may start a parallel blog and then link to it once I’ve left.
Sidebar: Even though I am motivated, I find myself with a short attention span. I start working, stop after 30 minutes, but still look forward to the next time I can work even though I have time to do it now. I think this is a bad habit after so many years of doing boring work. I always have to take a quick break and walk around the building or surf the web before I can keep working. The only way to get me working is pressure. That’s another bad habit, among many others, that I have to address.
So here I am…I’ve got one foot out the door. I am actually doing this! I can’t believe it!
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More Nuts and Bolts
This past week I decided to take a magnifying glass to my expenses over the past year to see whether I could comfortably adjust to what I’d like to spend post-biglaw. Here is the breakdown:
Most of the expenses under “Travel” are work-related expenses (i.e., I was reimbursed for those expenses so they don’t really count). My actual expenses total $55K.
I’ve already worked out a budget for my post-biglaw life. The big savings is rent. My rent will go from $31K/year to $7.2K/year because I plan on living with roommates. That will also help make my life a little more social than it is now. I will also cut wayyyy back on eating out by cooking most of my food as I have been doing for the past month. I don’t plan on boring myself to death as I have allotted myself $2,000 / year to spend on travel and I will stretch that to the limit. Part of the $2,000 will go towards visiting family. My other expenses should remain relatively constant.
My health care premiums are not reflected in this expense breakdown. I plan on applying for a relatively high deductible plan that separately provides for $30 doctor visits. This $1,500 deductible plan costs $140 /mo. Also, I will have to pay for dentist visits out of pocket ($125 x 2 visits per year).
My budget is fairly comprehensive. It includes a $500 per annum allowance for gifts, takes into account my car registration fee, haircuts, inactive status bar dues, and other random expenses. All told, I am planning on spending under $1,700 a month or $20K a year. If my savings keep up with inflation (that’s a huge IF), then my savings should last me almost ten years by the time I leave. I will have a $400 buffer on average in case I want to indulge in books, movies, travel or eating out (most likely travel). By buffer, I mean I will be able to keep my overall expenses under $25K a year, which is the maximum I want to spend.
Now the challenge is sticking to the budget. My next post will address how I should invest my cash safely, in order to keep up with inflation and maybe get an extra return.
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Interlude
I’m stuck between two worlds. One I yearn for, but cannot have yet. The other, a remnant of my past. I am in the process of reinventing myself; a process that repeats every few years and that I’ve come to enjoy. But I’m still stuck under the weight of my current situation. So busy, yet so unmotivated. Unable to focus on my transition like I want.
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Crossing the Economic Divide
In a few short months, I will transition from “upper-middle class” to “lower-middle class,” albeit voluntarily. (I put those terms in quotes because I think it’s meaningless B.S.) In practical terms, this means going from a $200K salary and never having to think about not having enough money to $0-40K and having to live off my savings. While I plan on using this time to find myself and potentially develop a few businesses, it will be difficult to adjust to the lifestyle change. Recently, I’ve been thinking about how much this shift will bother me, if at all.
As I posted before, I’ve been working on reducing my material desires. From a purely mathematical standpoint, I should be able to sustain myself for a few years. But what effect will this have on my sense of identity? I recently read this article in the New Atlantic about (in)conspicuous consumption and how different groups spend money. The author concludes that groups associated with not having money are more likely to flaunt what they do have.
That’s why a diamond-crusted Rolex screams “nouveau riche.” It signals that the owner came from a poor group and has something to prove.
While I don’t identify myself as coming from a poor group, how this translates to my personal situation is I’ll be on the other side of the fence. How will I look back at myself or at others like me. I’ve never felt the need to prove my net worth to anyone. But then again, I’ve been living in a financial bubble for quite some time and I’ve taken it for granted. Once I make this leap, will I yearn for what I once had? Will I compare myself to my former colleagues, my brother, my friends? Maybe, but I hope I will not become bitter. After all, I chose to give up the high-paying, fast-paced job in order to reassess who I am. I’m giving this up because it’s not what it’s cracked up to be. Life is not about material wealth. It’s about passion, love, and spiritual wealth. I’m willing to give up what I have in order to gain what really matters.
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The Next Stop Is …
I’ve been in constant brainstorming mode over the past few weeks. Here are some ideas I’ve come up with:
1. G0 in-house (boring, but safe)
2. Apply for a clerkship (very competitive, allows me to bide my time)
3. Get an MBA (not consistent with my still-vague goals)
4. Become a hermit — buy a vast swath of land in a remote area and live off my savings (seriously the thought has crossed my mind)
5. Start a products-based company (I have a list of “new” products, but barrier to entry is too high)
6. Develop and sell iPhone apps (low barrier to entry, but steep learning curve)
7. Form an IP licensing house (low social value)
8. Teach K-12 or at a community college
9. Play poker (short term)
In the meantime, I’ve joined several Meetup groups focused on start-ups. I have a feeling the typical wannabe-rich, yet socially awkward types will show up. I really don’t care about making a ton of money. I want to do something that is interesting and adds value. Practicing law really doesn’t add much value to the greater good, unless the greater good = large corporations. The money will come, I’m sure of it.
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Setting Timelines
One of the commenters in my last post warned that I unless I quit now, odds are pretty good that I will stay in my current position for awhile. And he/she’s right. Inertia is a powerful force. While I’ve been mentally preparing myself to leave, I haven’t actually left yet. So I decided to set a timeline for my departure.
Who would have thought quitting a job could be so complicated? Sure I could just quit tomorrow, but I’m trying not to burn any bridges here. Given my current commitments, the earliest I can quit is February 2010. Even quitting then means I would be quitting four months before my next trial.
My lease is up at the end of May 2010. If I quit, I *have* to move. If I wanted to leave as early as possible, I could give notice on February 1st and leave at the end of the month so I can transition everything over. That leaves me three months of rent that I have to cover. I can also stick it out until after my June trial, hopefully without picking up any additional cases in the meantime.
So there it is in writing. Now I need to use whatever free time I have until D-Day to figure out what to do afterward.
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