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Race to FI - Budget vs % savings

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  • #16
    I'm not sure if it makes it better or worse, but I don't think you're as close to financial independence as you implied. Unless you're going to rent forever? Financially independent means financially independent at the spending level you'll have in the end imo. It makes sense since you're only a few years out of residency!

    I'd focus more on the long game - you're gonna be rich. Just make sure you run through how the new house purchase is going to delay you're (potential?) early retirement and/or when you can cut back

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    • #17
      Originally posted by TheDangerZone View Post

      That's what I find weird about CoastFI. Like people really think they can pretty much stop saving and the lifestyle inflation won't catch up to them? Furthermore, it's tough to just flip a switch like that anyways. Of all the FI's, CoastFI seems the least realistic to me on a practical level.
      Can't you just say you're coastFI as long as that number accounts for 25x your new (possibly increased) spending level? Not like you had to be spending that higher level the whole time. It can also be way less than what you're current spending if you're planning to quit or cut back after the mortage is paid off, for ex.

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      • #18
        Originally posted by JBME View Post

        interesting perspective as I'm on the CoastFI train. I think a lot of us reasonably can spend more than we do. I say I'm CoastFI at this point (while I continue to put more than 20% towards retirement which means at some point in the unknown future I will be fully FI in my 50s and possibly in my late 40s depending on the market) but at least in my situation I do think certain spending will go down while other spending will go up. If your plan is to be mortgage-free once you retire that's a huge expense that just went away. We also pay daycare and that too is an expense that will go away. The elimination of those two things cuts my expenses by 25-33%. So I'm not sure why CoastFI doesn't work in your view.
        I'm more speaking to the concept that I've seen in other corners of the FI internet where the savings stop entirely and the spending goes up accordingly. The definition of true CoastFI is your portfolio will grow to support your needs without any additional contributions. I think a lot of people come up with an FI number based on their current expenses when they are saving quite a bit, then believe that their CoastFI number will still apply despite their spending having gone from 35% of gross to 65%.

        How did you come to your FI number? Did you subtract out daycare, mortgage, etc. to get an idea of your annual expenses? If you're still saving 20% or plan to continue putting away each year, I don't have any issues with that. It just sounds like you're just cutting back your savings as you get older and closer to FI with your early contributions doing more of the heavy lifting.

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        • #19
          Originally posted by TheDangerZone View Post

          I'm more speaking to the concept that I've seen in other corners of the FI internet where the savings stop entirely and the spending goes up accordingly. The definition of true CoastFI is your portfolio will grow to support your needs without any additional contributions. I think a lot of people come up with an FI number based on their current expenses when they are saving quite a bit, then believe that their CoastFI number will still apply despite their spending having gone from 35% of gross to 65%.

          How did you come to your FI number? Did you subtract out daycare, mortgage, etc. to get an idea of your annual expenses? If you're still saving 20% or plan to continue putting away each year, I don't have any issues with that. It just sounds like you're just cutting back your savings as you get older and closer to FI with your early contributions doing more of the heavy lifting.
          I agree I think we're talking about slightly different things. CoastFI is that you expect compound interest to do the great majority of the extract work for you to get to your FI # that you need once you reach retirement, and that will cover your expenses at the time you retire.

          I do indeed plan to cut back on savings as we get older and dedicate more money to spending, but thanks to compounding we'll see get to where we want. Personally I'm planning for a 3.5% withdrawal rate at age 55. Truthfully I have no idea what my expenses will be in 15 years when I'm 55. I can just do a best guess and overshoot just a little. Current target is $4m with a paid off house at time of FI, which will support $140k in spending. If I back track that and assume my portfolio will grow at 6%/yr plus expected future contributions, and use the rule of 72 that means I need to be at $2m by age 43. I'm about to be 40 and we're in the $1.3-$1.4m range. Admittedly that's cutting it close but while that's the goal now I can see myself and my wife working past age 55. I'm also ahead of plan in terms of what I thought our retirement balance would be today when I made the plan 4-5 years ago. Lots of moving pieces. I guess I'm not truly coastFI because I am still contributing to retirement and plan to continue to contribute to retirement. But I don't have to necessarily...it's just ingrained. And with an employer match, it's dumb not to contribute
          Last edited by JBME; 11-02-2021, 02:03 PM.

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          • #20
            Staying a few nights in a 5 star hotel or eating at Michelin rated restaurant a few times a year is not what is standing between you and FI. It's time. It takes time to build wealth even on a good income.

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            • #21
              The problem with using terms like near FI, coast FI, 20% saving etc without any hard numbers on income, expenses and expected FI number and where they are currently is that you get wildly different opinions and no one knows which one is right.

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              • #22
                Figure out how you want to live your life and then decide what your ultimate financial targets are from there. If you don’t want to quit working 5 years out of residency then scrimping on things you want just to be able to say you are FI doesn’t really serve you well. I would also recommend thinking of how much your family spends as a unit rather than “I spend 5k/month and my spouse spends a separate 5k/month” but that’s just my advice fwiw.

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                • #23
                  Wanted to add…being this fixated on “FI” which I am supposing is some number you have decided on—I’m guessing maybe 3 million (120k x 25) is not great for your mental health, especially when you are so young (and have plenty of time for wealth to grow). If the market tanks next year and you find yourself at 2 million rather than 3 and with the new baby your expenses go up to let’s say 150 and your wife decides to cut back a bit…I don’t know your numbers but I’ll make some up based on what you told us—
                  after tax income 600 (given you are saving 80% and spending 120). Age 35. Wife decides to cut back and now your after tax income is 500k and your spending goes up to 150. Let’s say you even buy the house and your spending goes up to 250k/year. Now you are saving 250/yr. the market has tanked and now you have “only” 2 million.

                  so while you may be freaking out in this scenario with the mindset of “must be FI”, from any rational person looking at the situation you are doing awesome, you have 2 million and saving 250k/year and you are still pretty young. In 10 years at even a very conservative 4% you have 6 million and are technically FI by most people’s calculations at the new spending level.
                  And you will have lived the life you want getting there.

                  I am making assumptions, it might be better it might be worse…my point is based on the info you gave you are going to be fine. You have more risk of not living the life you want because of the way you are thinking about money than you do of not living the life you want because you don’t have enough money.

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                  • #24
                    Originally posted by Anne View Post
                    You have more risk of not living the life you want because of the way you are thinking about money than you do of not living the life you want because you don’t have enough money.
                    As usual, Anne knocks it out of the park. Last line of her post, I'd take it to heart. I probably need to take it to heart.

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                    • #25
                      Originally posted by Hoopoe View Post

                      I think that this is a good succinct summary of where some of my hesitancy to increase spending comes from. FI is around the corner. Great! Then we increase spending and are no longer financially independent. Right now our fixed expenses are really low and we could likely get by on 2-3k a month indefinitely if needed. However a large fixed expense like a big CA mortgage for a 2.5MM house would definitely change that. My parents had several hard years when I was growing up where my dad lost his job while my mom was a lower income artist and we almost lost the family home several times. I think that makes me a bit irrational about these things. Add in a house + child and a wife who wants to go to part time and decreased family income and the ability for me to cut back goes away with the increased spending.
                      Who cares if you are FI now? What matters is that you are FI when you want to quit working. If you want to cut back at work, cut back. Then in a year, after new baby is here and your wife has gone part time too, you can see what your new budget is like and decide on a house then. But I would wait to buy the 2-3M house until you see where your incomes and happiness stabilize. It would be foolish to buy a 3M home if you will be unhappy working the job/hours you'd need to maintain to afford the home.

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                      • #26
                        Also spending 10k a month is not really slumming it. That is what we spend as a family of 6.

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                        • #27
                          This is a problem of goal driven people in general.
                          There are so many trade offs and you are confusing retirement savings, FI, relative standard of living, life style creep and probably relationships as well. First, understand the difference between retirement savings and wealth accumulation rate.
                          https://thephysicianphilosopher.com/...ecree-30-rule/

                          Sounds like you and the spouse need to recalibrate. The reason you are saving is to have money to enjoy your lives now and in retirement.
                          Jimmy explores this much better than I.

                          Bluntly, let’s assume your FI goal is achieved exactly 5 years from now. The big day is Nov. 2, 2026. Great, tremendous success,

                          Now, that day that was so so important, what are you going to do with all the days before and after? That is the question. Would you prefer 10 years later? I suggest you realize you have a whole life to live. Sooner, later or never. Learn to balance your life. One day (whatever day it is), is just that. Life goals are more important. Create a plan that you both are committed to. Setting a WAR is a way to do it. Balance the life before and after the big day. It is not as important as you are perceiving it to be.

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                          • #28
                            Originally posted by Tim View Post
                            This is a problem of goal driven people in general.
                            There are so many trade offs and you are confusing retirement savings, FI, relative standard of living, life style creep and probably relationships as well. First, understand the difference between retirement savings and wealth accumulation rate.
                            https://thephysicianphilosopher.com/...ecree-30-rule/

                            Sounds like you and the spouse need to recalibrate. The reason you are saving is to have money to enjoy your lives now and in retirement.
                            Jimmy explores this much better than I.

                            Bluntly, let’s assume your FI goal is achieved exactly 5 years from now. The big day is Nov. 2, 2026. Great, tremendous success,

                            Now, that day that was so so important, what are you going to do with all the days before and after? That is the question. Would you prefer 10 years later? I suggest you realize you have a whole life to live. Sooner, later or never. Learn to balance your life. One day (whatever day it is), is just that. Life goals are more important. Create a plan that you both are committed to. Setting a WAR is a way to do it. Balance the life before and after the big day. It is not as important as you are perceiving it to be.
                            Great article thanks. I think I'm definitely in the overly frugal high WAR camp. I can't think of a lot that I should spend on that I don't in terms of happiness. I suspect that cutting back on work and "buying time" is where the big ROI would be. As mentioned above the 10k a month is not slumming it (but a lot of discretionary expenses like eating out, travel, nice wines as we are in the CA wine region). I do feel a lot better after all of these comments. Thanks so much to the forum community!

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                            • #29
                              From someone a few years ahead of you:
                              If you delete the line “one year away from FI” and reread your OP, that may shift your perspective.

                              I would gently suggest you have focused too much on the FI part. This is not a scolding, just a mental course correction - can’t effectively talk about FI this young, without kids, without going part time yet, without buying a home (since you’re not long term renters). Your life is not yet mature enough to get a reasonable number.

                              I shake my head at the 24 year old kids saying “I’m FI with $300k!” Young person, you’re not looking around the corner.

                              For someone so young, you’re doing wonderfully. You need a better handle on the LIFE you want, then see what kind of TIME and monetary commitment it takes to live and love that life, THEN set a FI number, then plan for it.

                              You’re just a little FI cart before the horse. Common pitfall of the goal-directed.

                              Three kids running around playing the violin and riding horses with a part-time spouse sounds ugly from a FI perspective, which is your current mindset. Sounds lovely to me, IF that’s the LIFE you really want.

                              Best wishes.

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