Net Worth – End 2016

Some really nice progress in Q4. If we can avoid too many major expenses in 2017 it should be a great year for our goals unless Mr. Market puts stocks on sale in which case it’s still good for the longterm.

Assets

  • Home (Estimated Market Value): $70,000
  • 401(k): $69,150
  • tIRA: $19,056
  • Non-Earmarked Cash: $2,450
  • HSA (invested portion): $1,027
  • Total: 161,683
  • Assets towards FI: $91,683
    • Approximate passive income this would generate annually: $3,667

Liabilities

  • Home Mortgage: $98,941 @6.5% –> PMI makes it effectively ~7.1%
  • Student Loan (Alchemist A): $801 @0.1%
  • Student Loan (Alchemist B): $20,937 @4.36% (variable rate that has been slowly rising)
  • Total: $120,679

Net Worth: $41,004

Net Worth Last Quarter: $32,905

Net Worth 1 Year Ago: $9,863

Net Worth At the Start (End 2013): -$33,948

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Net Worth – Q3 2016

For now I think I’m still comfortable publicly updating our net worth progress. It’s a high-level look at our progress to our goals.

Assets

  • Home (Estimated Market Value): $70,000
  • 401(k): $65,191
  • tIRA: $18,303
  • Non-Earmarked Cash: $500 (We have much more cash on hand but a lot of it is going to be eaten up by the transmission rebuild that’s currently in progress.)
  • HSA (invested portion): $987
  • Total: 154,981
  • Assets towards FI: $84,981
    • Approximate passive income this would generate annually: $3,399

Liabilities

  • Home Mortgage: $99,579 @6.5% –> PMI makes it effectively ~7.1%
  • Student Loan (Alchemist A): $999 @0.1%
  • Student Loan (Alchemist B): $21,498 @3.9%
  • Total: $122,076

Net Worth: $32,905

Net Worth Last Quarter: $26,991

Net Worth 1 Year Ago: $15,371

Net Worth At the Start (End 2013): -$33,948


Net Worth – Q2 2016

Assets

  • Home (Estimated Market Value): $70,000
  • 401(k): $61,122
  • tIRA: $17,532
  • Non-Earmarked Cash: $1,350
  • HSA (invested portion): $946
  • Total: 150,950
  • Assets towards FI: $80,950
    • Approximate passive income this would generate annually: $3,238

Liabilities

  • Home Mortgage: $100,701 @6.5% –> PMI makes it effectively ~7.1%
  • Student Loan (Alchemist A): $1,197 @0.1%
  • Student Loan (Alchemist B): $22,061 @3.9%
  • Medical Debt @0%: $0 –>retired since last update
  • Total: $123,959

Net Worth: $26,991

Net Worth Last Quarter: $24,258

Net Worth 1 Year Ago: $17,213

Net Worth At the Start (End 2013): -$33,948


Net Worth – Q1 2016

Assets

  • Home (Estimated Market Value): $70,000
  • 401(k): $59,194
  • tIRA: $17,090
  • Non-Earmarked Cash: $3,000
  • HSA (invested portion): $922
  • Total: 150,206
  • Assets towards FI: $80,206
    • Approximate passive income this would generate annually: $3,208

Liabilities

  • Home Mortgage: $101,803 @6.5% –> PMI makes it effectively ~7.1%
  • Student Loan (Chief): $–>retired since last update
  • Student Loan (Alchemist A): $1,396 @0.1%
  • Student Loan (Alchemist B): $22,624 @3.9%
  • Medical Debt @0%: $125
  • Total: $125,948

Net Worth: $24,258

Net Worth Last Quarter: $9,863

Net Worth 1 Year Ago: $5,848

Net Worth At the Start (End 2013): -$33,948


Getting Past Scarcity to Abundance

Even as our financial picture has improved and our net worth increases, I catch myself quite frequently saying “I don’t have any money.” In fact, despite an above-median income, a happy and healthy household, there was a definite feeling of scarcity. Knowing how much we made versus the average family, I was aware of how irrational it was. There was no reason I should feel this way. Some of this came out of a certain keeping-up-with-Joneses mentality, but we’ve largely gotten past that in the past several years. So why did the scarcity mentality persist? And how can you get past it?

I’ve been thinking on this a lot as my mind wanders during epic fruit and vegetable prep for preserving sessions. Here’s what I’ve discovered so far.

Avoid debt and any fixed cost obligations like the plague. Fixed costs mandate a minimum level of income. They chain you to a certain level of stress, limit flexibility to take time off, and put you in an inherently fragile financial position. Be very wary when accepting fixed cost obligations for any level of time. The benefit should significantly outweigh the financial cost because there’s an emotional cost to raising your minimum level of expense.

Don’t neglect your emotional balance sheet. Money isn’t everything. The scarcity mindset prizes money – and more money – above all. It focuses relentlessly on earning more and spending less. While fixed costs are a danger, relentlessly cutting spending wholesale introduces a new scarcity. Suddenly you aren’t willing to spend on anything. But often, the best decisions for our overall well-being require spending a bit more money: Eating better food. Choosing to grow and preserve your own food, even when it’s more expensive than the same product at a store. Engaging in a hobby or two. Deciding to forgo a second income to have one parent stay-at-home.

So much of what I’ve chosen to do in the past year hasn’t saved money, but it’s added tremendously to the assets column of our emotional balance sheet. I struggled a lot with malaise over the past couple months because I was so aware of how ineffective I’d been at reducing some of our costs – most notably food – until I realized that the money aspect wasn’t everything. It gives us great emotional satisfaction to grow (and buy where necessary), and put up food grown a few feet (or miles) away from our front door.

Allow a bit of “blow” buffer to avoid frugal fatigue — IF that allows your spending and values to more closely align. Especially when in debt, but even at any stage of the wealth accumulation phase, it’s very easy to say you can’t spend money on something. But sometimes judicious, guilt-free expenditures pay dividends on the emotional balance sheet. Spending on gear to improve a hobby. Buying a little food out, or a gift, to maintain social capital with friends and family. Retail therapy this is NOT but the ideal is to align your spending and values 1:1. If you truly want to buy something, you should be able to say yes – every time. If you can’t, examine why that is.

Keep a cash buffer even when in debt. ESPECIALLY when in debt. When retiring debt, the temptation is to throw every spare penny towards paying them off. Fixed costs make you fragile, but so does spending every penny towards getting rid of those costs. What’s going to happen when a sudden bill comes up? Worse, what happens when you have to pass on an incredible opportunity to spend money on an emotional asset-inducing purchase?

With 3 kids and a homesteading-type lifestyle, we have very “lumpy” expenses. One month we spend rather little, but the next we’ll have surprise medical bills, a large bulk food buy, and a trip or activity to pay for. For the longest time I reflexively said “no” any time the topic of spending money came up. We didn’t have a penny to spare – we were in debt! A few months ago we decided to start building – and keeping – a large defensive cash buffer. It’s less an emergency fund – where you try to never touch it – and more a way to even out spending. I no longer freak out if a bill comes up, but more importantly I know we have the cash to carry a large expenditure if a good deal presents itself. Having the cash available allows me to examine the purchase on its own merit – does it align with our values? – and not the binary yes/no of whether we have the money to pay for it, even though we want it. Perhaps paradoxically, I think we’ll overall spend less money this way.

This is the perfect time of year, at least in the northern hemisphere, to think about abundance. The harvest season is upon us. Cheap, incredibly tasty food is easily available. If you’re a radical homemaker or homesteader-type, your stores are building up rapidly. Early and mid-summer sees fits and starts of preserving, but the real meat of lean-times eating are the post-Lughnasadh crops like tomatoes, apples, and winter squash. I was dwelling on how much time it was taking, how little (if any) money I was saving by it, but I was forgetting the immense emotional asset of abundance. Abundance of flavor from prime, local foods preserved with love. It’s a lot of work, but it’s a labor of love. Suddenly my malaise has (mostly) dissipated.

Have you struggled with a scarcity mentality? Frugal fatigue? How did you get past them to abundance?


Antifragility

I’ve been spending the past week or so reading the fascinating book Antifragile by Nassim Nicholas Taleb. While a bit obtuse at points, even to me, he develops a concept that is incredibly intuitive, yet has been neglected in basically all thought traditions. The eponymous concept is the state of all natural systems, but can we use it in our own lives and move away from the fragility so common in modern constructions?

First, some terms. He delineates what he calls the Triad:

  • Fragile: Things that are fragile are only harmed by disorder, stress, or randomness. Most artificial objects are fragile: they can be weak (non-durable) or strong (durable) but use/stress will only wear them out.
  • Robust/Resilient: Often erroneously thought of as the opposite to fragility, robust things are actually a middle ground. They neither benefit from randomness nor are harmed by it.
  • Antifragile: Things that benefit from randomness. Alternately, they can be harmed by some stressors, but in general are asymmetrically aligned to benefit from most stress. In other words, what downsides they have are mitigated, whereas their upsides are unlimited.

I’m not going to summarize the entire book, but since antifragility is a unique concept, I’ll give an easy example to understand before getting on to my own thoughts about it in regards to our life. Hormesis is a phenomenon whereby small stressors, either physical or chemical, improve the health of an individual or a system as a whole. Exercise does small harms to our body – our body responds by thriving. Most medicine is about giving our bodies small amounts of poison in order to trigger an asymmetric or disproportionate positive response. Small harm, great good. Whereas stasis will kill us incredibly quickly through atrophy.

In trying to internalize the book, it’s very clear our current financial life is fragile. Not as fragile as it used to be some years ago, where we were literally paycheck-to-paycheck, but the breathing room we’ve carved ourselves still isn’t enough to move out of fragility into robustness. Our primarily fragility is debt. We have a lot of it (a hair under $139K to be exact). Debt can be “strategic” but in imposing obligations on yourself, even then, you’re still making yourself fragile. Both of us agree: we really, really want to be debt free. If we were debt free, our minimal lifestyle (~$20K annually including taxes and estimated capital expenditures on house and vehicle maintenance) could be funded so many different ways. But right now we’re locked into a certain path, until we begin to mitigate our downsides by severing obligations one at a time.

Kids don’t need as much as many people convince themselves they need to have, but our goblins are another reason to move from fragility to robustness. Thinking of feeding your children when faced with, say, a job loss and cavernous debt is NOT something you want to face. Even a Stoic using the power of negative visualization to prepare herself for it can recognize it is a situation they could respond adequately to, but she’d much rather not experience it at all.

Going from Debt freedom to true financial independence entails a mixture of fragility and robustness. For us, debt freedom will instantly move us into robust territory, because the asset side of our balance sheet is more than large enough to qualify as “fuck you” money. If we wanted, it would be enough to fund our entire lifestyle for 5-10 years. Alternatively, we could find enjoyable yet minimally remunerative jobs, enough to skate by on, and let the stash compound for a decade or two – and then we’d be set. Or we could, obviously, stay our current course and simply wash our hands of mandatory work in short(er) order.

What does it mean to be antifragile, however? How can one truly benefit from positive randomness, instead of merely being immune to either kind? Taleb uses the example of a 90/10 investment strategy, where 90% of your funds are invested in low-risk near-cash equivalents, and 10% is invested in a highly speculative manner. It’s almost impossible to lose 90% of the stash, but the upside on the 10% is limitless. (One of his pre-writing careers was as an options trader, so this makes a lot of sense.)

I think, for us, antifragility is only partly found financially. But the main antifragility is time freedom. Having the free time to engage in unexpected opportunities is a massive boon. Time, or life energy, is a far more precious commodity than money.

We could have achieved financial robustness faster if I continued to work. While there’s some economization I’ve been able to do as a radical homemaker, it’s nowhere equivalent to the loss of even my modest income. But the things we’ve been able to do with our time together? Absolutely immeasurable in financial terms.

Leaving oneself open to spontaneity, at first glance, seems to run contrary to my essentialism experiment with routine. The whole point of routine for an Essentialist, however, is to remove clutter and lessen decision fatigue so that you’re able to respond agilely and quickly when real, essential opportunities and decisions arise. If you don’t provide yourself structure, the stress of deciding every last thing results in an exhaustion state where even truly interesting options can’t be exercised because the mundane has worn you down.

For right now the Alchemist is still trapped in a demanding job, thanks to our collective fragile state. Based on the way we’ve been talking, however, I think there’s a lot to be said (for us) about the appeal of banishing debt and then downshifting on the career. In other words, achieving time independence before financial independence. I think the former is far stronger than the latter. No matter what path we choose, we’ve got years ahead of us in fragile waters, but that’s my thought so far.

And what about navigating fragility? The mathematical optimal way to slay debt and move forward is to massage cashflow such that you’re not paying a penny more of interest as possible. You know what? F*** mathematical optimization. Managing a budget that way is nerve-wracking as hell. It’s also a more fragile response, in many ways. You’re giving yourself a fixed upside (less interest paid at a defined rate) but by living cash-poor you’re exposing yourself to massive downside (predatory lending rates, penalty interest rates, late fees, etc) if Black Swan events hit. And Black Swans will happen. We just had one when Beta wiped out hard on her bike and needed an ambulance ride to the ER. Facing that, low cash, was terrifying. Luckily it happened to be the same month the Alchemist had a triple pay period, so it was easy to claw back to having a cash buffer while we wait for the bills to hit.

I’m never letting that buffer drop again. The downside is just too bad versus the fixed upside of paying a few months less of 6.5% interest. Plus, having cash allows one to pounce on opportunities as well. I’m not looking for any right now, but in the future? Maybe.


Adjusting to YNAB

A lot of folks in the personal finance and financial independence spheres are familiar with the program You Need a Budget (abbreviated to its acronym YNAB). I’ve pooh-poohed it for over a year, trusting my pen, paper, spreadsheet system but after a commenter on this piece pointed out that the program runs almost flawlessly in a WINE bottle* I figured I might as well try it out.

30 minutes later I was hooked. 2 hours later a purchase was all but assured.

This isn’t a formal review of the software. This is basically my reaction to the software, its methodology, and how all of that makes me feel as a steward.

YNAB’s methodology breaks down into 4 Rules:

  1. Give Every Dollar a Job. Because the budget system and 3-month forward view works so well, you can budget forward much more effectively. I have very good data for the past, but counting out future cashflows – even fixed expenses – was always something my system had a very hard time doing. So I had to leave buffers all over the place to account for this haziness. I’m letting things stay a bit hazy for now, but in the future YNAB will let us be more aggressive about debt repayment and post-tax investment contributions.
  2. Save for a Rainy Day. This is something we’ve always done, but YNAB’s way of segregating funds is more elegant.
  3. Roll with the Punches. Oh yeah. We’ve done this a lot. Readers from the beginning (18 months ago!) will know how much has changed.
  4. Live on Last Month’s Income. Previously I kept a Dave Ramsay-esque $1,000 general buffer because we are in debt repayment mode, but we’re going to work up to filling a full month buffer, as it helps YNAB’s system work better. Initially I thought we had this already, but then realized I’d made an error in handling how our primary credit card was imported. We may have the buffer by April, but for sure we will have it by May of this year, and then can resume more aggressive external savings.

How do I feel?

Honestly, a bit humbled and chastened. I realize that, while I’ve made a lot of progress, there’s a lot more I can learn about future planning. Two mornings in a row I’ve woken up earlier than planned, my sub-conscious having chewed on details during the sleep, and spent my first waking minutes correcting errors and tweaking our YNAB setup.

Hubris is a nasty little bugger. I think I’ve let myself get a bit too excited about sustainability initiatives and almost dropped the ball on taking care of the core family financial health. Taking extra care is doubly important now that we are on a single income. Then again, having the mental bandwidth to focus so hard on adjusting our budget system is a possibility space created by me being home. Like all things in life, growth occurs in many directions, and from many sources.

Do you YNAB?

*For non-Linux heads, YNAB lacks a native Linux version, so to run it on Linux you have to use WINE, which is essentially a Windows emulator.