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Old 06-30-2015, 10:38 PM   #41
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The long term average is what you want to keep your eye on. If you are looking to park money for a few months, use a bank. If you are interested in 10%+ growth over the long haul instead of losing money in a savings account at .03%, then you are ready. The whole stock market average since 1965 is about 10% growth per year. The small cap index will usually significantly outperform that.
Keeping in mind that financial independence/security is a long-term program is important. Pick a sensible vehicle and stick with the program, regardless of what the market's doing this week/month/year. The value of our 401k's dropped so much in 2001, and again in 2008, that I thought we were screwed dead both times. They ultimately came back better than where they were, as if nothing had happened. People obsess over this week's Dow, but the market performance short-term is just a distraction.
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Old 07-01-2015, 05:10 AM   #42
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Do you guys plan to have kids? Say goodbye financial independence.
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Old 07-01-2015, 08:05 AM   #43
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Do you guys plan to have kids? Say goodbye financial independence.
The effect children would have on plans for financial independence is going to depend on quite a few things.

- How frugal are you? (Hand me down clothes, used strollers, minimal toys)
- Can either one of the parents or other relatives help out with childcare to avoid expensive daycares?
- How much money do you make?
- How far along in your FI path did you wait to have children?
- Is your child healthy?

Kids do not have to be expensive. People choose to make them expensive or are unlucky enough to have a child that is plagued with expensive health issues. Obviously there is a little luck here but for the most part children are relatively healthy. Most of the famous financial independence bloggers have at least one child. Mr Money Mustache (at the extreme) has a boy and his family spends less than $30k a year total. I am not saying I plan to live off of $30k while raising my kid but I also likely won't fully retire either. I do plan to have kids but not until I am between 30-35 years old. By that point I should have a fairly solid base for Financial independence and I should be making quite a bit of money based on my current career trajectory which would likely allow for me to still save for FI while raising a child. I also live near my parents and grandmother who would all be more than happy to help raise my child.
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Old 07-01-2015, 10:35 AM   #44
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I admire your plan. And definitely think that starting the process to some degree as early as possible is sage advice.

fwiw- I soon realized children are far less of a predictable budget item than I thought before having them. There are many more places to spend your money on them than I anticipated. For example- take a perfectly healthy kid, with average school performance, but plenty of room for improvement. Parents opt for a private tutor and the success is significant. Now they have a 2nd greater in private tutoring for the remainder of school. OR they could let he/she go through school as average student. Just saying that children can be a far more personal budget item than what you budget for groceries, or entertainment, or hobbies.
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Old 07-01-2015, 10:56 AM   #45
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<p>
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Originally Posted by Ryan_G View Post
The effect children would have on plans for financial independence is going to depend on quite a few things. - How frugal are you? (Hand me down clothes, used strollers, minimal toys) - Can either one of the parents or other relatives help out with childcare to avoid expensive daycares? - How much money do you make? - <strong>How far along in your FI path</strong> did you wait to have children? - Is your child healthy? Kids do not have to be expensive. People choose to make them expensive or are unlucky enough to have a child that is plagued with expensive health issues. Obviously there is a little luck here but for the most part children are relatively healthy. Most of the famous financial independence bloggers have at least one child. Mr Money Mustache (at the extreme) has a boy and his family spends less than $30k a year total. I am not saying I plan to live off of $30k while raising my kid but I also likely won't fully retire either. I do plan to have kids but not until I am between 30-35 years old. By that point I should have a fairly solid base for Financial independence and I should be making quite a bit of money based on my current career trajectory which would likely allow for me to still save for FI while raising a child. I also live near my parents and grandmother who would all be more than happy to help raise my child.
</p><p>&nbsp;</p><p>FI = Forced Induction? &nbsp;</p>
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Old 07-01-2015, 11:51 AM   #46
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Honestly I don't know when I'll need it. A/C could blow up in the rental property, roof could fall in, whatever.
Thankfully, if you are using it as an alternative to a long term savings account, you can transfer just some of the money out of it if needed. Sometimes people think of it as an all or nothing deal but is possible to transfer a few thousand over to a checking account if something comes up.
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The effect children would have on plans for financial independence is going to depend on quite a few things.


-Whether your wife has the right attitude about money or not
FTFY.

The single most important decision will be who you partner up with in this endeavor.
Success or failure relies on no other single step more critically.
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Old 07-01-2015, 12:17 PM   #47
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Lots of sage advice in this thread.
I'll add that controlling your expenses is far, far easier than wringing your hands over the stock market, trying to build the next great startup, etc.
Start by controlling your expenses:
Dine out minimally, if at all. This goes double if you go to a bar regularly.

Buy an old corolla for cash, drive it into the ground. Payments on a depreciating asset are bullshit. If it's feasible for you to not own a car, don't own one. Even paid off cars are expensive.

Ditch cable.

Quit impulse buying. Use mint.com for a few months, and you'll realize the $5.50 you spend every time you hit the gas station ends up being a lot of ******* money.

Buy the smallest house you need. Better yet, buy a small house that needs light renovation. Do the work yourself.

A lot of this stuff is similar to what Dave Ramsey espouses, though I disagree with him on a few major points (paying off ALL of your debt, not worrying about your credit score, etc).

Once you have your spending under control, your savings account will come along, then you can worry about investing.

edit: +1 to what Sixshooter posted. If your wife buys Prada behind your back, you're in for a long, shitty time. Choose your domestic partner very carefully, or they can vaporize your finances in a heartbeat.
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Old 07-01-2015, 02:26 PM   #48
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Two cars bought cash
Zero debt
Don't drink
Don't smoke
Don't do drugs
Monthly overhead (all expenses) come to less than $1,000.
Income is heavily varied. 1k to 4k a month. Personal Trainer at private gym.

26/male/not married(never will)/no kids(never will).

1 hobby and I could cripple myself every time I train for it.

Where do I start?
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Old 07-01-2015, 02:54 PM   #49
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Originally Posted by viperormiata View Post
Two cars bought cash
Zero debt
Don't drink
Don't smoke
Don't do drugs
Monthly overhead (all expenses) come to less than $1,000.
Income is heavily varied. 1k to 4k a month. Personal Trainer at private gym.

26/male/not married(never will)/no kids(never will).

1 hobby and I could cripple myself every time I train for it.

Where do I start?
You've got your life figured out and under control right now. If I remember correctly you have your own business, right? If so, depending on how that is going, you'll need to decide if investing further into the business has a better payback than investing in something else (that you have less control over).

Or you can do both to minimize your risk in case one of them fails.
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Old 07-01-2015, 03:46 PM   #50
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Originally Posted by viperormiata View Post
Two cars bought cash
Zero debt
Don't drink
Don't smoke
Don't do drugs
Monthly overhead (all expenses) come to less than $1,000.
Income is heavily varied. 1k to 4k a month. Personal Trainer at private gym.

26/male/not married(never will)/no kids(never will).

1 hobby and I could cripple myself every time I train for it.

Where do I start?
Do you need two cars?
Six months worth of income in an "emergency" bank account
Once that is done, save some more and throw it in a Vanguard mutual fund. Add to it monthly.
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Old 07-01-2015, 03:52 PM   #51
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Do you need two cars?
Ahem, a turbo Miata is one of them. And it doesn't run.
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Old 07-01-2015, 03:56 PM   #52
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Originally Posted by calteg View Post
Do you need two cars?
Six months worth of income in an "emergency" bank account
Once that is done, save some more and throw it in a Vanguard mutual fund. Add to it monthly.
You forgot the IRA contributions he should be making since that is likely the only tax advantaged account he has access to.

Josh, I assume the gym you work at does not offer you a 401k. Are you an employee of the gym or are you a contractor? If you are technically self employed you could think about incorporating yourself and then opening up a company 401k which would require that you pay yourself a salary. This would take some paperwork and a little $$ for the fees involved but would be well worth it in the long run if you plan to be a personal trainer in the long term. You would be able to not only max out your own 401k contributions but contribute the full allowable amount for employer contributions as a sort of little guy loophole. It would also allow you to reduce the business income by expenses. This can get rather complicated depending on how you structure it but also offers a lot of savings if done correctly. A CPA would be able to help you with the particulars but it likely would not be worth it until you start pulling in more money.
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Old 07-01-2015, 04:07 PM   #53
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You forgot the IRA contributions he should be making since that is likely the only tax advantaged account he has access to.

Josh, I assume the gym you work at does not offer you a 401k. Are you an employee of the gym or are you a contractor? If you are technically self employed you could think about incorporating yourself and then opening up a company 401k which would require that you pay yourself a salary. This would take some paperwork and a little $$ for the fees involved but would be well worth it in the long run if you plan to be a personal trainer in the long term. You would be able to not only max out your own 401k contributions but contribute the full allowable amount for employer contributions as a sort of little guy loophole. It would also allow you to reduce the business income by expenses. This can get rather complicated depending on how you structure it but also offers a lot of savings if done correctly. A CPA would be able to help you with the particulars but it likely would not be worth it until you start pulling in more money.
My ex-wife did this while she was a self-employed hair stylist and part-time educator.

Basically there is a certain income range (I don't remember we let the CPA handle it) that it makes sense, above and below just do it on your personal taxes.
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Old 07-01-2015, 04:28 PM   #54
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<p>I'm taking a different approach from FI/RE.</p><p>My plan is not to retire ASAP, but rather in the age 67 timeframe (I'm 60 now). Reason is that my earning potential is greatest now than ever in my life. My thought is to be able to fund my retirement, and my children's retirements.</p><p>For liquidity, I use MITFX, a municipal bond fund, which has much better return than a CD, and&nbsp;is tax efficient&nbsp;outside my 401k. This houses my 3-6 month's living expenses and car purchases.</p><p>For long term investment, inside a 401k, I use VINIX and VTI. The ETF version of the Index Mutual Fund (VTI) has lower fees than the Mutual Fund version, and I use it as a buy and hold, not for trading. The VINIX is a mutual fund, but is my company's preferred, so has low fees as well. I have become a fan of full market index funds&nbsp;for long term, hands off,&nbsp;low risk investment</p><p>For safety against Market downturn, I have FEHIX and MWTIX bond funds. Not a large proportion here, but I'm&nbsp;working for them to be abourt 4 years worth of living $$&nbsp;when I retire, so that I would draw from bonds instead of stock during market downturns.</p><p>Not saying these are the best funds and mix, but&nbsp;they represent a mix than could be reviewed.</p>
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Old 07-01-2015, 04:43 PM   #55
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You've got your life figured out and under control right now.
That's awfully nice of you to say. Lets hope it's true.
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Originally Posted by patsmx5 View Post
If I remember correctly you have your own business, right? If so, depending on how that is going, you'll need to decide if investing further into the business has a better payback than investing in something else (that you have less control over).
It's a fledgling business. 7-8 months into it so far.

Quote:
Originally Posted by calteg View Post
Do you need two cars?
Quote:
Originally Posted by sixshooter View Post
Ahem, a turbo Miata is one of them. And it doesn't run.

Quote:
Originally Posted by calteg View Post
Six months worth of income in an "emergency" bank account
Once that is done, save some more and throw it in a Vanguard mutual fund. Add to it monthly.
I'll google that today. As of this moment I have 4,300 cash sitting in my drawer that I have nothing to do with.

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Originally Posted by Ryan_G View Post
You forgot the IRA contributions he should be making since that is likely the only tax advantaged account he has access to.

Josh, I assume the gym you work at does not offer you a 401k. Are you an employee of the gym or are you a contractor? If you are technically self employed you could think about incorporating yourself and then opening up a company 401k which would require that you pay yourself a salary. This would take some paperwork and a little $$ for the fees involved but would be well worth it in the long run if you plan to be a personal trainer in the long term. You would be able to not only max out your own 401k contributions but contribute the full allowable amount for employer contributions as a sort of little guy loophole. It would also allow you to reduce the business income by expenses. This can get rather complicated depending on how you structure it but also offers a lot of savings if done correctly. A CPA would be able to help you with the particulars but it likely would not be worth it until you start pulling in more money.
I am not employed by the gym. I work for myself. Insurance is done under my certification. I haven't made anything else official at this time.

The rest of your paragraph is melting my brain.

Short term goals are to brand this business and then go back to school next year to start working on becoming a professional strength coach. I'd like to continue personal training while I'm in school but I have no idea what jobs will be available to me in the new city. I'm spoiled as **** working private and have no idea if I'd be able to handle a commercial gym.
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Originally Posted by z31maniac View Post
My ex-wife did this while she was a self-employed hair stylist and part-time educator.

Basically there is a certain income range (I don't remember we let the CPA handle it) that it makes sense, above and below just do it on your personal taxes.
I'll have to check this out, as well.
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Old 07-01-2015, 05:20 PM   #56
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I am not employed by the gym. I work for myself. Insurance is done under my certification. I haven't made anything else official at this time.

The rest of your paragraph is melting my brain.
I'll try to give you a better breakdown of what I am talking about while keeping it as easy to digest as possible.

You are currently self employed and are running your own business. It would be in your best interest to incorporate that business which will offer you some additional legal protection and tax benefits. Most small businesses end up becoming S Corps. which offer a lot of personal liability protection, are relatively simple, and take advantage of personal income tax brackets (which are lower) instead of business income tax brackets.

Now due to the possibility for one of your clients to get injured while using your services and then suing you, the legal protections alone would likely be worth it as they would shield your personal assets. You just have to be careful how you treat business and personal funds/assets here because if you intermingle them then someone who sues you could 'pierce the corporate veil' and go after you personally anyway.

On the topic of financial independence, setting up a corporation offers you the ability to utilize some tax advantaged accounts in a somewhat unique fashion. You can setup a company 401(k). You are an employee of this corporation and you pay yourself a fixed salary. You would be able to contribute up the max 401(k) contribution amount as an employee which is currently $18,000. You would also be able to contribute the maximum employer contribution amount which is an additional $35,000 for a grand total of $53,000 that you could completely shield from taxes until you starting making retirement withdrawals. Its an awesome little tool that can offer pretty insane benefits if fully utilized. It also helps make up for the fact that as a self employed person you are responsible for all 15% of your payroll taxes.

If you wanted to set something like this up I would suggest you find a local CPA that specializes in small businesses. They would be able to walk you through all of the details and are more than worth their fee.

EDIT: Also, in case anyone is wondering why there is such a large focus on 401(k)'s from someone who may want to retire early, look into Roth conversion ladders which allow you to plan out early withdrawals from your 401(k) funds without penalties once you stop working.
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Old 07-01-2015, 06:41 PM   #57
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Ryan, as a self employed individual, Josh should be eligible for a SEP, which has some advantages over a 401k, wouldn't you agree?

https://investor.vanguard.com/what-w.../sep?WT.srch=1
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Old 07-01-2015, 07:26 PM   #58
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Ryan, as a self employed individual, Josh should be eligible for a SEP, which has some advantages over a 401k, wouldn't you agree?

https://investor.vanguard.com/what-w.../sep?WT.srch=1
Actually, due to the fact that he would be the only employee this offers no additional benefit but further restricts his allowable contribution.

The 401(k) allows him to contribute as both the employer and employee. The SEP IRA only allows him to contribute as the employer.
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Old 07-01-2015, 09:02 PM   #59
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But he has more flexibility with regard to withdrawal, too.
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Old 07-01-2015, 11:01 PM   #60
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Actually, due to the fact that he would be the only employee this offers no additional benefit but further restricts his allowable contribution.

The 401(k) allows him to contribute as both the employer and employee. The SEP IRA only allows him to contribute as the employer.
I own a business along with another guy. We both elect to stay as an LLC and take advantage of the SEP rules.

Much cleaner and has a certain amount of flexibility the 401K route doesn't even though the SEP doesn't allow as much contribution.

1. We have no employees and never will
2. Our revenue passes through as personal income but we get to take advantage of the usual business rules i.e. Health insurance and SEP is above the line deductions to our personal income.
3. SEP is revenue based so as revenue/income rises so does the amount of SEP contribution which frankly playing by this scenario leaves us with much more money in our pocket vs Uncle Sam.

Every year we look at the alternatives and going into a 'corporation' but our legal counsel and tax accountant both say no.

Every business is different and there's no set answer to what's 'the best'.

Following this thread there's a lot of good advice but frankly it boils down to; 1. spend less then you take in (also the best business advice), 2. find a place to park your money that hopefully will pay you the best + safest rate of return (I've not seen any mention of rental properties or the like), 3. don't have any debt and 4. if you must pay someone to manage your 'investments' pay them the least you can (index funds).

Last edited by bahurd; 07-01-2015 at 11:30 PM.
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