Monday, May 19, 2014

My Yearly Dividends Now Exceed $35,000

In Sight Of Our Goal: South Georgia Island

This week was an important milestone for me.  For the first time, my yearly dividends now exceed $35,000.  This event comes ahead of schedule for my year-end targets of $35K for 2014 and $40K for 2015.  The odds are beginning to look very good that my mortgage will be fully paid off and my $40K/year income floor will be reached by the end of 2015.  The goal is within sight.

2016 is quietly shaping up to be my annus mirabilis.

Sunday, May 18, 2014

Blog Maintenance

There are two minor blog maintenance items I wish to bring to your attention.

First, I have decided to move the list of "Blogs I Read" from my right sidebar to a static Blogroll page that can be accessed from the top of any page.  The Blogger blog widget list is, more or less, a primitive feed reader, and so I make this change in order to remove the temptation for me to monitor and read blog updates several times a day. 

Second, I have decided to turn off commenting for the next few months.  I am sorry if (in theory) this decision makes this blog less interactive.  In practice, however, there have been zero comments total in the last 10 posts, so I really doubt it will make much of a difference.  Again, I strive to maintain focus on other areas of my life right now, and daily checking for comments to approve/reject is not a productive activity.  I apologize in advance if this temporary state of affairs inconveniences anyone who might have an urge to comment during the summer months.

Tuesday, May 6, 2014

Consilience Revisited

A few months ago, I wrote a short post on consilience.  That article explained the concept of consilience, but did not provide any personal examples.  Today, I am going to give a recent example of the use of consilience in my personal finances.

One of the more difficult numbers to determine is how much you really want to spend to be happy.  I give little credence to national averages or to extreme frugality wonks who are always preaching that anyone can live on some small amount of money.  Look, I'm sure most of us could survive on almost nothing by leading a subsistence lifestyle.  However, the point is not that most people could do that, but rather that most people don't want to do that.  Each person adds a set of non-negotiable constraints to his or her life, and then attempts to optimize their spending around that framework.  In other words, your realistic spending number is a highly personal amount.

Method #1: Intuition

So it has been a longstanding goal of mine to construct a portfolio that reliably produces $40,000 a year in dividends.  But why $40K?  It was totally gut feel.  I kept asking myself: What about $30K?  What about $45K?  What about 50K?  No matter how many times I thought about it, I kept coming back to the same number: $40,000 per year.  I wasn't really sure why I picked that number because our total yearly spending is actually quite a bit more than that number.  Still, I noted that number as having some special significance.

Method #2: Budget Analysis

A few months ago, I tried a new kind of budgeting exercise.  I went through each item and asked myself the following question: Do I really need to have this item?  If I could stop working tomorrow by eliminating this item, would I eliminate it?  Or do I value it so much that I would rather keep working?

The items that I considered mandatory, I put in one bucket.  The items I was willing to part with, I put in a different bucket.  If there was hesitation, I simply put it in a third bucket.  Hence, I ended up with a particular meaning for the typical mandatory/discretionary/unknown spending breakdown.  Now intuition tends to look beyond things that are highly certain and highly uncertain.  So subtracting off something that is highly certain (i.e. my mortgage will definitely be paid off in 18 months) and something that is highly uncertain (i.e. my healthcare costs), I arrived at a final number.  Interesting enough, it was $40,000 a year.  And I knew I had seen that number before.

Method #3: Comparison

On a completely different track, I had a discussion with a friend who had recently retired.  He told me that before he retired, he had spent considerable time with a financial advisor and they had worked out various spending scenarios.  One scenario involved cutting back expenses in areas that he would not consider to be a lifestyle change.  Now this was of interest to me because with the exception of an expensive hobby, I perceive his lifestyle and spending patterns to be very similar to mine.  He also has no mortgage and employer-provided retirement health insurance.

Adjusting for the expensive hobby, his number was also roughly $40,000 a year when cutting out things he could live without and still feel like it wasn't a major lifestyle change.


That is how I came to be comfortable with $40,000 as a floor spending level.  This number makes the assumption that my mortgage will be paid off completely and that health insurance costs are excluded from that number (i.e. provided by an employer, the government, or paid with by a separate account of money).  Because I arrived at roughly the same number by three independent methods, I have more confidence that the number is reasonable.

This was a straightforward example of consilience applied to a personal finance problem.  In my next post, however, I will describe a much more complex and subtle use of consilience as applied to my career.

Friday, May 2, 2014

2014 Goals Update

Back on January 2, I posted a very rough outline of my 2014 goals:

"I don't anticipate much change in the handling of our finances for 2014.  We'll just keep doing what we've been doing.  Instead, I hope to spend more time in 2014 working on other aspects of my life.  Areas to focus on include maintaining a healthier lifestyle, being more disciplined in my reading, redefining my "career path", and finally pursuing a number of moneymaking ideas I've kicked around for years (hint: not this blog)."

More specifically, I divided the year into thirds and will try to focus on just a few things during each part.  The first four months of the year are behind us, and it's time to take inventory.

Financial Goals

Everything is basically still on financial autopilot.  Net worth is still increasing.

Health Goals

The specific health goal I had for the first four months was to try to eat at least 5 servings of fruits and vegetables every day.  I had dabbled with this several times before, but it never became a habit.  Realizing I needed more organization, I tracked my consumption in this area daily.  I also got serious about understanding and measuring serving sizes, and set tracking rules for myself - no including juice, prepackaged junk, and things that aren't really vegetables (e.g. legumes).

Despite my organization, it still did not go smoothly.  By the end of January, I had only been successful 14 of 31 days.  But I stuck with it.  By the time March finished, I was 26 of 31 for the month.  For April, I achieved 29 out of 30, and it had become an ingrained habit.

The next 4-month goal involves exercise and that's all I'm going to say for now.

Reading Goals

I set a goal to read three books each month and I achieved that goal.  I also posted 13 weekly reviews of my online reading.  Sadly, however, much of this will need to come to an end now, in order to make time for my final category of goals.

Career/Business Goals

I now have a couple of very specific goals in this area for the next four months.  So much inertia has built up over the years in this area of my life that frankly, I am pretty scared about tackling these goals.  It's also clear I'm going to need a lot of focus and discipline if I'm really going to pull this off.  Nonetheless, having mentally worked through a number of issues during the past few months, I am confident that I should proceed. 

But despite my fear, it has also been a very long time since I was this excited to begin something.  I will probably write a little more in a few days about the general process of how I got to this point, but the specific goals themselves are going to need to stay very vague on this blog.

How about you?  Did you follow through on your resolutions and goals?