Sunday, 14 April 2013

Financially Self Sustaining

True to my post yesterday I have been trying to broaden my horizons by reading areas of personal finance which I had not give much thought to before.  One of the concepts which peaked my interest was that of Early Retirement Extreme.  For those not familiar with the concept it is the idea that by reducing unnecessary expenditures you can save (and invest) the lion's share of your earnings and thus retire in 3-8 years.

Naturally I spent the next two days running numbers and seeing how this system would work for me.  I came to the following two conclusions:

If I downsized my house I could in all likelihood live comfortably on $7,000-$9,000 a year.

Early Retirement Extreme is not for me.

Why not?  The simple fact of the matter is that living on such a budget would not allow for me to foster and adopt kids, which for me is huge.  The idea of spending a large portion of my life in relative solitude holds no appeal to me.  I would rather work longer and have a house full of children.  There is also the fact that the more that you fly in the face of social convention the less likely you are to be approved as a foster/adoptive parent.  I understand where this comes from so, for the moment, a tiny house is out of the question.

So instead of shooting for Early Retirement Extreme I will be aiming for what I have chosen to call Financial Self Sustainability.  The idea behind FSS is that losing my income would not affect my ability to support myself.  I would be able to keep a roof over my head and food in my stomach by living off my investments.  It would mean downsizing to a smaller house (and using the equity in my current house) and it would mean no kids.  But I could survive.

How much would I need to be FSS?  It breaks down like this:

One time costs - Land: $20,000-$30,000 in my local area
                        - Tiny house $25,000 based on the Tumble Weed Tiny home that I like, though I could potentially go lower.

Monthly costs - Utilities, taxes, and maintenance: $300

Monthly costs - $150

Monthly Costs:
Food - $100
Cell - $30
Internet - $50
Health Insurance - $23.52
Clothes - $10
Misc - $10
Yearly expenses (like fees to maintain my RN's status) - $50

Total one time costs - $55,000
Monthly costs - $723.52 = $8,682.24

Since I would not want to withdraw more than 4% of my portfolio per year I would need to have investments equaling $104,400 to generate an income of $8,700 per year.  Add to that a one time costs of $55,000 and once I have hit a net worth of $159,400 I will be FSS.

My current net worth is $134,800.06.  Which is a shortfall of only $24,599.94.  In other words I am 84.6% of the way there.

Until I started writing this article I didn't know that I was that close.  Needless to say I am pleasantly surprised.  Of course unless I am awarded a scholarship, approximately $20,000 of my net worth will be magically (via a lot of hard work) transformed into a Master's Degree over the next 2 years.  So at my current rate of savings ($1,660 per month) I should reach FSS in 27 months.  Which I will naturally track with one of my nifty sidebars.

Have a question?  I'd love to hear it!

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