What are your goals?

[petec]

If you're a competent pianist in a whorehouse, you will be hip deep in free poon.

 

 

Outstanding comment but I doubt it. Professionals know the value of what they possess. I suspect that only those who think they're above selling their bodies give their bodies away free for music. Funny old world!

 

 

[DooDiligence]

If you're a competent pianist in a whorehouse, you will be hip deep in free poon.

 

 

Outstanding comment but I doubt it. Professionals know the value of what they possess. I suspect that only those who think they're above selling their bodies give their bodies away free for music. Funny old world!

 

Some business owners aren't very disciplined with pricing.

 

Buy a ticket to Brasil.

 

Unlock some value.

 

You don't even have to be able to play piano.

[Jurgis]

To play piano in a whorehouse.

Screw my previous goals, i’m all in on this one.

 

Seriously?! Surely you can think of better things to do if you're ever in a whorehouse  ;)

 

Wait, there are other things to do in a whorehouse?  ???

[DooDiligence]

To play piano in a whorehouse.

Screw my previous goals, i’m all in on this one.

 

Seriously?! Surely you can think of better things to do if you're ever in a whorehouse  ;)

 

Wait, there are other things to do in a whorehouse?  ???

 

You have to pace yourself.

[Dynamic]

An informative thread turning into quite a funny thread.

 

AIM 1.

I think financial independence for me and my wife, essentially in perpetuity, is the main aim and we're almost there now, so I would feel no great pressure if I should find myself out of work. I'd be very happy to do what Charlie Munger did, and overshoot that aim rather significantly! After reviewing our spending over the last few years to account for those odd and unexpected extras from time to time, we recently increased our target retirement income by 22% to make sure we are very comfortable to go on living a good life. We are projecting a lower rate of return in retirement in case we become more conservative or passive in our investments or hit some setbacks in the crucial first 5-10 years of retirement. Nonetheless, something from 2-5 years more investing and compounding depending on how the actual compounding turns out is very likely to see us reach this aim.

 

AIM 2.

I also want to continue to really enjoy life with my wife in the here and now - partly because it adds joy and colour to our lives and partly because you never know how long you have on this world, as loved ones have found out in the past. We do live well now, and it doesn't have to be terribly expensive (right now we live on little more than one or our two modest salaries and have a great time), and while we've travelled extensively and continue to do so for around 5-6 weeks a year plus small weekend trips, I'd love to travel even more with her and really experience even more of the world. We don't need a ton of expensive luxuries or a big house, and we're both fine with deferred gratification and retaining things to look forward to, but I don't want to defer everything until I'm too decrepit to fully enjoy it.

 

AIM 3.

Be generous to family and friends, tip well for good service and donate money to highly effective charities doing great and rational things for the world, especially if they lack broad funding constituencies (thanks Warren, Bill and Melinda). Also pass on the benefits of being smart with money and living below your means to people I care about who might be receptive.

 

AIM 4.

Self-improvement and enjoying the game. Improving as an investor and a human being, lifelong learning. I enjoy the pursuit of investing and knowledge and self-improvement and I'd love to keep finding opportunities to outperform where possible. I have fun just continuing to learn and reading and thinking plenty.

 

STRETCH AIM 5.

Giving something back to the world. I'd love to find a niche where I can contribute or help talented people to contribute to the betterment of humanity in a substantial field or an important niche without taking such a risk that I could lose our financial independence or generate stress in our lives. I don't know what it will be, though it might involve an element of my applied physics and engineering background if the right idea comes along, but if we can generate a lot of surplus wealth we can afford to try risky things with potentially high returns and be a little entrepreneurial in the pursuit of worthwhile progress if it looks fun and fulfilling and not financially ruinous. I have no illusions of being a James Dyson or Gwynne Shotwell and revolutionising industries and humanity's capabilities through great engineering, but there might be something where I can contribute myself or recognise and fund others who can contribute something of value. It might even be that the best return comes from encouraging others to value intellectual, rational pursuits for the betterment of their lives and humanity.

 

AIM 6.

To change any and all of the above aims as the whim takes me and to change my mind if I decide I was wrong about something! That's what financial freedom and intellectual independence allows. I also hope I can retain optimism while maintaining healthy rational skepticism and that I don't descend into cynicism or start disparaging the 'youth of today' or the state of the world. I like the approach of Steven Pinker and the late Hans Rosling - realist optimists who see the bigger picture of how the world has been improving greatly for so many people in so many ways.

[rolling]

Full financial independence, without having to worry: What if things go wrong. That means:

- good fully paid house near wife's workplace (I don't think she will give up working soon)

- enough passive income for us, our current kids and possible future kids (it gets harder without knowing how many heads to feed)

- that passive income would have to come from a low risk source: if I want to keep on investing, my active portfolio return shouldn't be taken for granted

- a car to visit our family/go a few days to the beach

 

Not easy but not impossible also. I guess I am dependent on no negative surprises anytime soon:

- being able to build the house at a reasonable budget (land already paid off)

- getting our wages at the end of the month for a few more years (at least until house is built)

- no extraordinary expenses

- no wipe outs on the portfolio

- no big problems with our car

 

Edit: I guess I am also limited by positive surprises: what if we go for more kids??

 

[york]

1. Make investing my career.

2. Don't experience another permanent loss of capital. 

3. Have the opportunity to explore my own intellectual curiosity everyday - for a living. (see #1)

4. Buy a boat. (ignore #2 for a second  ;D)

[HalfMeasure]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

[rolling]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

Different country: Assuming house and car fully/mostly paid, about 700.000€ each (if wife also wanted FI) would probably be more than enough (unless in a bubble, assuming 5% long term pre tax returns).

[SnarkyPuppy]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

$1.5mm USD in the states gives you about $45k at a 3% withdraw rate.  Seems pretty reasonable to me.  Probably only a month worth of expenses for some of the high rollers in this thread though.

[Dynamic]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

To give a simple answer, at the lower bound a typical market value of around $750K USD might cut it for a frugal couple with no kids living in the UK in a modest apartment wanting a fun life and a fair amount of travel.

 

I first started seriously projecting possible retirement dates since about 2015.

 

I began with various assumptions and ended up with quite a simple way of projecting our retirement year and seeing whether that projection shifted much over time.

 

Assume Inflation Protection - quality companies I'd own should be able to increase prices with inflation, so their look-through earnings should increase with inflation over time and I was a little concerned that possible inflation was being stored up by Quantitative Easing since 2008-9. Thus, use of Real Terms returns is feasible and it makes the calculation far easier. Studies like the Barclays Equity-Gilt Study and UK government mandated retirement projection calculations published by the FSA also express things in real terms, so I can sanity check against those. Interest rates rising a lot would lower the market value of the portfolio to generate comparable future returns, so best not to be too incautious.

 

Assumed Real Terms Returns. The UK FSA's guidelines for use over 10-15 year time horizons were then 5% above inflation for equities, less any fees and costs such as commissions and UK stamp duty on purchases (a range of 4.5-6.0% was given). The guidelines are based on market levels at the time (a little depressed, but by no means a bear market), so may be revised down a little as markets get more frothy. And they're supposed to be over a whole cycle including bear markets and recessions. Also assumed negligible tax due to tax-sheltered accounts. The actual return is likely to differ materially, and judging by previous returns, it may well exceed the projection in the long run, though it might well be lumpier than market return. I'd also assume I'm virtually fully-invested at all times.

 

Assumed Savings Rate before retirement. We made a target figure, and decided to save about 40%-50% of our joint incomes, which ought to rise with inflation too. Having no kids, inexpensive tastes and a modest apartment bought during the crisis helps. It's possible that the shift from RPI to CPI as official UK Government Inflation Statistic understates inflation by as much as 1.0% per year, however. I settled on CPIH excluding tobacco to fairly well reflect our costs including housing as the measure by which we inflate.

 

Assumed Income required during Retirement. We initially chose a figure based on our mortgage being paid off, assuming no pension income, and having a good standard of living. Being UK-based, for now at least, we don't have to worry unduly about healthcare costs until old age, when we might need to pay for carers, so it lowers the bar. We have just recently reviewed our spending over 5 years in the app we use to track it, and decided to increase our target income by around 20-25% to allow for additional spending that is a little sporadic in nature and slightly more in the way of big trips and fancy dining, and for the fact that we're very likely to retire long before our mortgage is paid off.

 

Dividends and Drawdown. I don't intend to use a traditional bond-equity mix during retirement, though we might keep 1-3 years' living expenses out of equities. Looking at total return I don't seek to differentiate between dividends and drawdown as a source of income.

 

Assumed capital needed to retire. As everything is in real terms, during retirement the portfolio can be assumed to maintain the same real value, keeping track with inflation (with variations in market price superimposed on this) if I draw-down income at the real rate of return (3.5-5.0% depending on how conservative or optimistic my calculation is). For example assuming 3.5% real return during retirement, the capital required to retire is a simple capitalisation calculation: RetirementIncome / 0.035 = 28.6 x RetirementIncome. Assuming 5.0% real return, it's RetirementIncome / 0.05 = 20.0 x RetirementIncome. For example, a £25,000 GBP income in today's money would require as much as £714,000 GBP ($850K USD today) or as little as £500,000 GBP ($600K USD today) which isn't an enormous stretch.

 

To be a little more market-neutral and conservative, I estimate a crude "Low Value" low-ball price for my positions to keep me more focused on growing Intrinsic Value of my portfolio and its defensiveness.

Low Value for cash is just the full value of cash held (I should probably lower this to about 80-85% to account for the fact I'm likely to invest it soon so my retirement projection is more consistent if I'm temporarily cash-heavy), but for many GARP stocks I capitalise an estimate of normal/recent EPS or Free Cash Flow at about 8.5% yield (P/E or P/FCF = 11.76), and sometimes I use an alternative such as pegging Berkshire Hathaway's Low Value at 1.2x Book Value where it rarely trades. I track the Low Value of my portfolio as well as the Market Value, and have managed to grow Low Value at a comparable rate to market value, with some variations.

 

So to model this I keep a fairly simple spreadsheet.

 

I scale up the required Retirement Income by the change in CPIH inflation measure (using the high-water-mark).

 

Here's a hypothetical example:

 

Starting LoVal in May 2019:      £ 100,000

Pre-retirement Real Growth rate:  7.00%   (0.070)

Post-retirement Real Growth rate: 4.50%   (0.045)

Retirement Drawdown (Nov 2015):  £ -23,369

Inflation adjustment factor = 107.3/100.3 = 1.069791 
(based on CPIH excl tobacco Apr 2019 versus Nov 2015)

Real Drawdown (May 2019 money): £ -25,000

Real Capital to Retire = £25,000 / 0.045 = £555,554

Savings Rate pre-retirement = £ 20,000 per year (May 2019 money)

 

In the current year (here, 2019), I scale down the savings and growth rate to the fraction of the year remaining. Being late May, there are over 7 months out of 12 left.

 

Each year I apply the pre-retirement growth rate and assume we invest the pre-retirement savings amount. However, if the Starting LoVal is at least equal to the Real Capital to Retire, then I instead apply the post-retirement growth rate and the post-retirement drawdown amount (negative). It's a simple IF statement in a spreadsheet to choose which value to look up for each.

 

I add the savings or deduct the drawdown at the end of the year in question.

 

I can see the projected retirement year by when the amount Savings(Drawdown) becomes negative, indicating drawdown has begun.

 

Year | Starting LoVal | RealGrowth% | Grown LoVal | Savings/(Drawdown) | Year-end LoVal
2019 |      £ 100,000 |       4.28% |   £ 104,277 |           +£12,219 |      £ 116,496
2020 |      £ 116,496 |       7.00% |   £ 124,651 |           +£20,000 |      £ 144,651
2021 |      £ 144,651 |       7.00% |   £ 154,776 |           +£20,000 |      £ 174,776
...
...deleted years...
...
2030 |      £ 505,494 |       7.00% |   £ 540,879 |           +£20,000 |      £ 560,879
2031 |      £ 560,879 |       4.50% |   £ 586,118 |           -£25,000 |      £ 561,118
2032 |      £ 561,118 |       4.50% |   £ 586,369 |           -£25,000 |      £ 561,369

 

Here, you'll see that this hypothetical person could probably retire in 2031 on this projection.

 

You'll notice that after retirement, the LoVal stabilises, as it has just exceeded the amount required to withdraw 4.5% and keep it constant.

 

As the months and years roll by, both the Savings rate and the drawdown rate will increase along with inflation.

 

I typically run this type of projection from time to time, and make a note of the date, my starting LoVal, the annual amount to save and the annual amount of retirement income, then I try a few scenarios with the pre-retirement and post-retirement returns.

 

I started by estimating the retirement year using two scenarios but now occasionally try out the following pre/post -retirement rates:

 

Very Conservative: 3.5%/3.5%

Conservative: 4.5%/4.5%

Median Likely: 7.0%/4.5%  (as above, perhaps assuming I beat the market modestly pre-retirement)

Optimistic: 11.0%/5.0% (beating the market quite significantly pre-retirement)

Over-Optimistic: 18.0%/5.0% (shooting the lights out until retirement)

 

This method (particularly using LoVal instead of Market Value) has generally produced quite consistent results even as markets rise and fall, varying only modestly over time, and gradually bringing in the projected retirement dates as I have had a few very good years of beating the markets significantly in terms of both market value and LoValue growth. It didn't even go too crazy despite the massive fluctuations since the Brexit vote in 2016.

 

Obviously, the Optimistic and Over-Optimistic scenarios are more sensitive to initial conditions and are rather likely to get pushed out later as time moves on unless I continue to get pretty lucky, but even they don't move very much over time because I decouple my LoVal from Market Price.

 

It would probably vary more if the pre-retirement savings rate were not so close to the drawdown income, as retirement would be further away and a longer time to retirement would vary by more years for the same percentage change in starting value etc.

 

Using LoValue also helps me keep mentally focused on fundamental values rather than market price, and I'm happy to have built the LoValue and Market Value at index-beating rates in recent years, even if I'm lagging behind slightly in recent months, as I will from time to time.

[ukvalueinvestment]

You lost me there :)

 

I'm from the UK also.  We have a great tax free wrapper here called an ISA, which enables you and your spouse to save £40k tax free (no capital gains or income).  You can also save £4400 per year for each of your kids.  If I can live to or near to my life expectancy (85) and make 6% over inflation per year, I will leave this world with them as multi millionaires, able to choose whatever career they want with the knowledge they will be able to live well and do the same for their kids.

 

Writing that makes me happy.

[RichardGibbons]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

For me, the answer was liquid financial assets of 40 times annual expenses (i.e. I don't count the house).

 

My reasoning is that studies show that a 4% withdrawal rate gives you something a 96% chance of not running out of money in retirement.  To me, a 4% failure rate is too high because the bad long-tail result--running out of money when you're 80--would be horrible.  Plus, I'm younger than retirement age so the money has to last longer, and I don't want the stress of worrying about money.  So, I use a 2.5% withdrawal rate so that the odds greatly favor my net worth increasing over time.

 

Also, if I get much below financial assets of 40 times expense, I imagine I'll cut expenses somewhat as well. Doing this has a large impact in lowering the failure rate.

 

That said, I don't know what the number would be if I lived in the USA where it seems fairly easy to blow through huge amounts of money relatively quickly if someone in your family runs into health problems.  Maybe a 1% withdrawal rate or 100 times annual expenses?  Even that might not be high enough to keep the probability of not running out of money above 99%.

 

[Ross812]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

I would need about $65k after tax in 2017 dollars with a paid off house to retire the way I would like. $8k/yr taxes a maintaining the house; $15k/yr in groceries, dining out, and decent wine; $5k in autos/fuel, $37k for travel and everything else. $1.85M should do it.     

[Jurgis]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

I would need about $65k after tax in 2017 dollars with a paid off house to retire the way I would like. $8k/yr taxes a maintaining the house; $15k/yr in groceries, dining out, and decent wine; $5k in autos/fuel, $37k for travel and everything else. $1.85M should do it.   

 

Canada or US?

 

I'm totally flabbergasted how US based people don't account for significant medical expenses in their planning. We had that discussion on Money Mustache thread and I'm probably beating a dead horse here, but the costs are large. And if you or any of your family hit any chronic disease and/or require long term care, that can eat income from $1M+ by itself.

 

Edit: +1 on what RichardGibbons said.

[Dynamic]

You lost me there :)

 

I'm from the UK also.  We have a great tax free wrapper here called an ISA, which enables you and your spouse to save £40k tax free (no capital gains or income).  You can also save £4400 per year for each of your kids.  If I can live to or near to my life expectancy (85) and make 6% over inflation per year, I will leave this world with them as multi millionaires, able to choose whatever career they want with the knowledge they will be able to live well and do the same for their kids.

 

Writing that makes me happy.

 

Yes, self-select ISAs are a real boon. Even £7,000 each in the early years was a real boost compared to PEPs and TESSAs, but the £20,000 each really makes financial independence goals very achievable. The only tax I've had to pay via my ISAs is a little to the US IRS on US dividend withholding tax.

Self-Invested Personal Pensions are also pretty attractive, though the restrictions on the pension age and the lump sum withdrawals are a downside.

The UK Capital Gains Tax exemptions outside the ISAs are also very attractive - well over £11,000 of gains per person before a penny must be paid, then it's either 10% or 20% tax rate depending on your income tax bracket - about half the marginal rate of income tax, and it's quite easy to manage splitting the gains between spouses.

 

[SharperDingaan]

You might want to include leverage in your asset mix  ;)

(T-Bills, Margin, etc)

 

If your retirement draw-down is 4%/year, and the market has just tanked 35%, are you really going to continue seling down your equity at  those depressed prices? Or is the plan to temporarily fund that 4% draw-down from your cash position + dividend/interest inflow? or margin borrowing + dividend/interest inflow? Ultimately, it's a calculation .....

 

SD

 

 

 

[Dynamic]

Actually, in addition to my tax free ISA where leverage is not available, but cash can be stored, I do have a taxable account with a significant opportunity to withdraw cash up to say 50% of the market price of my stocks. Of course, if market prices fell further, my percentage margin loan would increase so I'd want to be very cautious in how much I'd borrow against my stocks. I would expect to be able to sit through a very long bear market without a cut to income drawdown by gradually drawing on margin as cash is needed. Maybe by the time I get there UK customers will be able to obtain debit cards against their brokerage accounts like US customers of Interactive Brokers making spending from account resources very simple.

 

If I don't use margin normally, a very modest margin loan would give me flexibility obtain spending money without selling stock at low points in the cycle when prospective returns would be highest. I could also raise a little premium income by writing calls at a strike prices where I'd be happy to sell stocks. Either the price would rise and I'd get exercises at a price where I'm willing to sell or I'd get to keep the premium income of prices remained depressed.

[Ross812]

For everyone replying, if you had to encapsulate financial independence as a net worth threshold, what would the $ amount be?

 

I would need about $65k after tax in 2017 dollars with a paid off house to retire the way I would like. $8k/yr taxes a maintaining the house; $15k/yr in groceries, dining out, and decent wine; $5k in autos/fuel, $37k for travel and everything else. $1.85M should do it.   

 

Canada or US?

 

I'm totally flabbergasted how US based people don't account for significant medical expenses in their planning. We had that discussion on Money Mustache thread and I'm probably beating a dead horse here, but the costs are large. And if you or any of your family hit any chronic disease and/or require long term care, that can eat income from $1M+ by itself.

 

Edit: +1 on what RichardGibbons said.

 

US. I should have included that I have healthcare covered with 10k max out of pocket expenses each year. Long term care insurance is essential and i would expect to pay 4k per year starting at 60 or buy a lump sum plan for 200 to 250k.

[randomep]

 

 

I'm totally flabbergasted how US based people don't account for significant medical expenses in their planning. We had that discussion on Money Mustache thread and I'm probably beating a dead horse here, but the costs are large. And if you or any of your family hit any chronic disease and/or require long term care, that can eat income from $1M+ by itself.

 

Edit: +1 on what RichardGibbons said.

 

frankly I am a little flabbergasted by your statement.  How many people do you know have paid out $1M for hospital bills in their lifetime.  And what percentage of the population has paid $1M in their lifetime?  I mean say 10% (very generous) of the population can pay $1M, how many of them do? not to mention the other 90% that cannot afford it, so they are toast, or they just skip paying their bills. Even if you are worth $10M I'd think you'd be livid at paying $1M for an illness.

 

Now if you are talking about long term care, well that goes into the yearly expense category and someone mentioned $65k a year, I think that should do the job.

[Jurgis]

I'm totally flabbergasted how US based people don't account for significant medical expenses in their planning. We had that discussion on Money Mustache thread and I'm probably beating a dead horse here, but the costs are large. And if you or any of your family hit any chronic disease and/or require long term care, that can eat income from $1M+ by itself.

 

Edit: +1 on what RichardGibbons said.

 

frankly I am a little flabbergasted by your statement.  How many people do you know have paid out $1M for hospital bills in their lifetime.  And what percentage of the population has paid $1M in their lifetime?  I mean say 10% (very generous) of the population can pay $1M, how many of them do? not to mention the other 90% that cannot afford it, so they are toast, or they just skip paying their bills. Even if you are worth $10M I'd think you'd be livid at paying $1M for an illness.

 

Now if you are talking about long term care, well that goes into the yearly expense category and someone mentioned $65k a year, I think that should do the job.

 

Yes, most people in US are screwed up if they have serious illness.

 

First of all, I did not say that $1M would be used by illness. I said that the income from $1M would be used by the illness. Assuming 2.5% withdrawal, that's $25K per year. There are drugs that are way more than that.

 

Second, $65K per year is borderline for care. Even taking Alabama, which is likely one of the cheapest states, semi private room in nursing home is $6K per month. https://www.genworth.com/aging-and-you/finances/cost-of-care.html

 

Third, I did assume a couple rather than a single person. So if one person needs care, the other person still needs money to live on.

 

Fourth, people on this thread are talking about living "nicely". I'd assume they would prefer to choose good/great doctors, possibly drugs that are not covered by insurance, possibly good-to-great nursing homes rather than crappy facilities for themselves or their partners. Yeah, sure you can survive for less... maybe. Maybe not. It's obviously your decision how much money you'd allocate for this.

 

But yeah. There was a similar pushback from people last time we had this discussion. "Are 99.X% of elderly Americans screwed?" Maybe not. There's a significant percentage who don't need care, who die fast, who might be looked after by their family (sacrificing their lives to avoid the costs). There's also some percentage who can survive with Medicare/Medicaid coverage or whatever equivalent their socialist state (CA/MA) may provide. It's your choice to evaluate probabilities and account for possible expenditures accordingly. I personally don't want to get to 75, get chronic disease, and discover that my wife has to choose to either live a comfortable life or to take good care of me but not both. If that makes me overestimate the money needed for medical/care, so be it.

 

Maybe Elon Musk will develop the brain uploading and this whole point will be moot really soon now.

 

Edit: Estimate from Fidelity: https://www.fidelity.com/viewpoints/personal-finance/plan-for-rising-health-care-costs

 

It is estimated that the average couple will need $285,000 in today's dollars for medical expenses in retirement, excluding long-term care.

 

(Emphasis mine)

[oracle13]

This is going to be a lengthy answer because I will include the WHYs

 

1) Financial Independence - There were two events that really stood out in my life/career that puts me on the path to want to gain financial independence. During 2008/2009, I was a RE investment banking analyst at Citigroup when Citigroup's stock went below $1 per share.  It had traded in the $40-50 range when I started in late 2006.  There were a lot of 40-50 year old relationship bankers in the Private Bank and Smith Barney side who had really long faces during that time.  I was a young guy in my 20s who hustled and worked hard.  The 40-50 year old guys/gals never really developed tangible skill sets such as investing.  But they did develop soft skills like catering to wealthy millionaires.  Their jobs were pretty much glorified concierge services to the millionaires and billionaires that Citigroup served.  In late 2008, a lot of those guys on my floor realized that their skills were worth $200-300k a year only if a large financial institution like Citi continues to exist.  Without the various fiefdoms of Citigroup or another large financial institution, they really had no stock picking, investing, or "profit generating" abilities.  As Citigroup continued to lay off people, I realized that eventually they will get rid of me as well.  But I was in my mid 20s, young, hungry, and hustled, and I had just discovered this guy named Buffet.  So I decided that I was going to the Berkshire meeting in May 2009 if I got laid off.  The 40-50 years old on my floor were terrified of what might happen.  What I learned is that they never really saved and invested.  They became accustomed to the expensive lifestyles of eating out and renting summer houses.  Many of them pay up for rental apartments in NYC. But no one owned anything really.  They mostly spent their $200-300k salaries.  Plus their Citigroup stocks were junk paper at this point.  I made up my mind that day that I will continue to invest in myself and my ability to invest. 

 

The second incidence is more of the cumulative experience of my teenage years.  I have shared my experience of how a Chinese take out restaurant works and how slim the margins are.  I have tried to analyze why my dad behaves a certain way, I believe that if someone is willing to get on a boat and come to the US from China, he's probably got a bit of risk taking genes in him.  Anyway, my dad in his 30s were rather quick to take risk.  We opened a second restaurant when we could've focus all of our energy in our first restaurant.  The 2nd restaurant winded up being a complete flop and we lost about $100k in 90s term.  That was actual monetary loss and about 2-3 years of dividing between an original restaurant that performed decently but lacked attention and this new venture that never took off and sucked the soul out of us.  We finally cut our losses and focused on our first restaurant.  By the time, we came around to that realization, the first restaurant was about 8-9 years old and it needed a refresh.  Given that we just lose $100k, we did not have the cash laying around to invest another $50-70k into a restaurant refresh.  So my parents being the scrappy immigrants that they are, decided to play a bit of game of working capital maneuvering and delay paying our vendors and milked the cashflow.  What they did not understand at the time is that you can kind of work with your suppliers and draw out the payment terms by up to 3 months.  But you can't really mess with your home mortgage, restaurant rent, and various utility bills.  This is kind of common practice in China at the time.  Sometimes you don't pay for 3-6 months and then you pay the entire bill in one fell swoop. 

 

I was about 12 and the best English speaker in my household.  I got a knock on my door one day and a guy from our bank giving us a service notice for home foreclosure.  I was 12 and learned a very early lesson on what happens if you don't pay your mortgage in two consecutive months.  I asked the guy "why would the bank do this to us? We are good for it.  I found out how much legal fees we now accrued etc."  I remember we paid $240k for the house and we had a $180k mortgage on it at about 8-9% interest (yes, early 90s interest rate).  I was terrified that we might lose our house and we maybe homeless.  The worst thing is having to explain this to my parents.  I grew up really fast that day because I learned how foreclosures work.  The terrifying thing about my teenage years is that it was in essence going from one chaotic shit storm to another chaotic shit storm.  Home foreclosure, building department citation for illegal construction without proper permit, health department citation, rent past due, improperly installed HVAC system which may cause pilot light to go out and create an explosion. 

 

My wife and I have talked about how if we buy a house, I want to do what Buffet did and either own it 100% equity or set aside 3-5 years of cash mortgage payment to service the mortgage.  I have a 2 year old son and I never want him to get a knock on the door when he's 12 and have to learn from a stranger what a foreclosure is and why it is a terrible thing. 

 

Surprisingly, my family somehow manage to own a few buildings now.  Due to luck, we correctly bought some rental units in Queens when only colored folks lived in Queens. Rent has gone up quite a bit and interest rates have dropped.  In short, all my siblings own a rental building each.  Over the years, I have grown to appreciate the economics of owning a rental building in NYC.  I used to look at it from the perspective of earning a yield.  However, when you can leverage with 30 year fixed rate fully amortized non-recourse debt, it creates very interesting opportunities.  In short, my cost stays largely flat. But I get to extract 1/3 of a tenant's monthly income for each unit that I own.  It sounds diabolical, but it is the economic reality of owning real estate.

 

I will provide part 2 of my goals in another of my updates

 

Great post, thanks for sharing.

[SnarkyPuppy]

This is going to be a lengthy answer because I will include the WHYs

 

1) Financial Independence - There were two events that really stood out in my life/career that puts me on the path to want to gain financial independence. During 2008/2009, I was a RE investment banking analyst at Citigroup when Citigroup's stock went below $1 per share.  It had traded in the $40-50 range when I started in late 2006.  There were a lot of 40-50 year old relationship bankers in the Private Bank and Smith Barney side who had really long faces during that time.  I was a young guy in my 20s who hustled and worked hard.  The 40-50 year old guys/gals never really developed tangible skill sets such as investing.  But they did develop soft skills like catering to wealthy millionaires.  Their jobs were pretty much glorified concierge services to the millionaires and billionaires that Citigroup served.  In late 2008, a lot of those guys on my floor realized that their skills were worth $200-300k a year only if a large financial institution like Citi continues to exist.  Without the various fiefdoms of Citigroup or another large financial institution, they really had no stock picking, investing, or "profit generating" abilities.  As Citigroup continued to lay off people, I realized that eventually they will get rid of me as well.  But I was in my mid 20s, young, hungry, and hustled, and I had just discovered this guy named Buffet.  So I decided that I was going to the Berkshire meeting in May 2009 if I got laid off.  The 40-50 years old on my floor were terrified of what might happen.  What I learned is that they never really saved and invested.  They became accustomed to the expensive lifestyles of eating out and renting summer houses.  Many of them pay up for rental apartments in NYC. But no one owned anything really.  They mostly spent their $200-300k salaries.  Plus their Citigroup stocks were junk paper at this point.  I made up my mind that day that I will continue to invest in myself and my ability to invest. 

 

The second incidence is more of the cumulative experience of my teenage years.  I have shared my experience of how a Chinese take out restaurant works and how slim the margins are.  I have tried to analyze why my dad behaves a certain way, I believe that if someone is willing to get on a boat and come to the US from China, he's probably got a bit of risk taking genes in him.  Anyway, my dad in his 30s were rather quick to take risk.  We opened a second restaurant when we could've focus all of our energy in our first restaurant.  The 2nd restaurant winded up being a complete flop and we lost about $100k in 90s term.  That was actual monetary loss and about 2-3 years of dividing between an original restaurant that performed decently but lacked attention and this new venture that never took off and sucked the soul out of us.  We finally cut our losses and focused on our first restaurant.  By the time, we came around to that realization, the first restaurant was about 8-9 years old and it needed a refresh.  Given that we just lose $100k, we did not have the cash laying around to invest another $50-70k into a restaurant refresh.  So my parents being the scrappy immigrants that they are, decided to play a bit of game of working capital maneuvering and delay paying our vendors and milked the cashflow.  What they did not understand at the time is that you can kind of work with your suppliers and draw out the payment terms by up to 3 months.  But you can't really mess with your home mortgage, restaurant rent, and various utility bills.  This is kind of common practice in China at the time.  Sometimes you don't pay for 3-6 months and then you pay the entire bill in one fell swoop. 

 

I was about 12 and the best English speaker in my household.  I got a knock on my door one day and a guy from our bank giving us a service notice for home foreclosure.  I was 12 and learned a very early lesson on what happens if you don't pay your mortgage in two consecutive months.  I asked the guy "why would the bank do this to us? We are good for it.  I found out how much legal fees we now accrued etc."  I remember we paid $240k for the house and we had a $180k mortgage on it at about 8-9% interest (yes, early 90s interest rate).  I was terrified that we might lose our house and we maybe homeless.  The worst thing is having to explain this to my parents.  I grew up really fast that day because I learned how foreclosures work.  The terrifying thing about my teenage years is that it was in essence going from one chaotic shit storm to another chaotic shit storm.  Home foreclosure, building department citation for illegal construction without proper permit, health department citation, rent past due, improperly installed HVAC system which may cause pilot light to go out and create an explosion. 

 

My wife and I have talked about how if we buy a house, I want to do what Buffet did and either own it 100% equity or set aside 3-5 years of cash mortgage payment to service the mortgage.  I have a 2 year old son and I never want him to get a knock on the door when he's 12 and have to learn from a stranger what a foreclosure is and why it is a terrible thing. 

 

Surprisingly, my family somehow manage to own a few buildings now.  Due to luck, we correctly bought some rental units in Queens when only colored folks lived in Queens. Rent has gone up quite a bit and interest rates have dropped.  In short, all my siblings own a rental building each.  Over the years, I have grown to appreciate the economics of owning a rental building in NYC.  I used to look at it from the perspective of earning a yield.  However, when you can leverage with 30 year fixed rate fully amortized non-recourse debt, it creates very interesting opportunities.  In short, my cost stays largely flat. But I get to extract 1/3 of a tenant's monthly income for each unit that I own.  It sounds diabolical, but it is the economic reality of owning real estate.

 

I will provide part 2 of my goals in another of my updates

 

Great post, thanks for sharing.

 

Echoing these thoughts - thanks for taking the time to share these stories

[Jurgis]

Ref to senior living costs upthread:

Barron's had an article this week about senior living/housing with some cost numbers: https://www.barrons.com/articles/finding-your-retirement-home-51559332736?mod=hp_DAY_10 (opened free/no paywall today/might differ from printed version).

[muscleman]

1. Financially independent.

2. Be the Olympic champion of this game. When Buffet had only a small account, he was doing 50% a year. I want to have that kind of return.