The Intersection of FIRE and Disney

[Starport Seven-Five]

My major take-away from him is to be intentional with my money - know where everything is going.
I am set to FIRE at 55 in a few years. I was before reading the book, but have a renewed confidence since I started seriously and actively budgeting everything. Being debt free certainly helps.

Yeah, and that portion of his advice is quite good. I just get touchy when people recommend him wholesale as I don't want to give too much credibility to his ELP's, 12% returns, paying extra for managed funds, 8% withdrawal rates, and other crap as it's major disservice to people.

To me, the primary message here is to find something accurate and consistent because otherwise you're leaving yourself open to playing games with the narrative. My thoughts on why I track savings rate and why I track it the way I do:

• Tracking my Net Worth change each year provides no value. Market Performance is not a controllable and over time will settle into a normal trend. I should not pat myself on the back if the market did well or penalize myself if it did poorly.

Counterpoint: Net worth (or at least a significant portion of it) is what you will retire on. You can have a great savings rate for years and if you don't put the money to work for you... you'll just have your savings. Things that are tracked get your attention and improve because of it.

Ideally I'd like to track both as a consistently calculated savings rate is good for comparisons and it is what is completely under your control. Net worth includes those savings though and if only calculating one... I fall into the net worth category.

Also, the NW vs savings rate discussion probably depends a lot on where you are in your FI journey. When you're just starting out your savings rate is the major contributor to your wealth while further down the road your investment strategies matter more.

 

[trenty]

Yeah, and that portion of his advice is quite good. I just get touchy when people recommend him wholesale as I don't want to give too much credibility to his ELP's, 12% returns, paying extra for managed funds, 8% withdrawal rates, and other crap as it's major disservice to people.

Agreed. I did include in my OP above that I do not agree with everything he preaches. However, if someone is doing nothing (or doing something that is not working) to get out of debt his baby steps do work. Even when followed faithfully (including the “crap” you mention),that person will be in a better place financially.

 

[SouthFayetteFan]

Counterpoint: Net worth (or at least a significant portion of it) is what you will retire on. You can have a great savings rate for years and if you don't put the money to work for you... you'll just have your savings. Things that are tracked get your attention and improve because of it.

Ideally I'd like to track both as a consistently calculated savings rate is good for comparisons and it is what is completely under your control. Net worth includes those savings though and if only calculating one... I fall into the net worth category.

Also, the NW vs savings rate discussion probably depends a lot on where you are in your FI journey. When you're just starting out your savings rate is the major contributor to your wealth while further down the road your investment strategies matter more.

I understand what you're saying BUT this discussion was specifically related to comparing your performance on controllable factors YoY (which change in NW provides little value in that vacuum due to the markets impact which is out of your control). I would also state that this discussion is more regarding people you are on their journey to FIRE. These are the people that are largely looking to build that savings rate up to a level that gets you to FIRE in 7-15 years and/or attempting avoid lifestyle creep that would take them off if that target. I'm going to assume that anybody here on the journey to FIRE is invested in a broad based index fund such as VTSAX - if you aren't doing that then what @Starport Seven-Five said above is pretty important...get off your couch and put your money to work. You can't solely "save" your way to FIRE, you have to find a way to generate cash flow off of your savings (either in the form of stocks, real estates, owning a business, or some other passive income stream).

All of that said, I will maintain that comparing your absolute change in NW holds no value to those on the journey to FIRE. On my journey, I focus on the controllables and let the market take care of itself. An illustration:

• In 2018 I saved $67k with a SR of 53.5%; My NW increased $52k due to poor market performance
• In 2019 I saved $42k with a SR of 36.9%; My NW increased $133k due to fantastic market performance

The NW increase does not remotely speak to anything I actively did in each of those years - did I do better in 2018 or 2019? Clearly "I" did better in 2018 and what I did in 2018 will pay much better dividends down the line vs. what "I" did in 2019. To me, this shows that the amount I saved, and more importantly, my Savings Rate, provide a consistent and effective comparison YoY for me to identify areas for improvement. I'm not about to go patting myself on the back for what "I did" in 2019. I spent a lot...I saved less. Thankfully the market rewarded me with a lot of income, and it might take that away next year, and I'm cool with that too, all part of the cycle.

Now if we want to cease a discussion on comparing YoY I am totally on board with looking at where your NW stands daily/weekly/monthly/annually and I actively do that myself on a VERY regular basis. I also have a projection for where my NW will be at the end of each of the next 10 years and I watch for any trends that indicate I’m falling off of that target. That is absolutely a marker you want to pay attention to, especially once you are within a decade of reaching potential FIRE. You can then begin to approximate annual expenses, figure out a SWD that you are comfortable with, and calculate where your NW needs to be to actually FIRE.

TL/DR: If you're saving a bunch of money but leaving it in cash then you need to revisit how FIRE works.

 

[Budzooka]

I've got a question that I know is very subjective, but am going back and forth trying to decide the best course of action. I've received a cash payment that will allow me to pay off some debt (all interest rates of 3.25% or lower) or invest into a taxable account. I am already maxing out contributions to my employer retirement accounts, HSA account, and am planning on a two year backdoor roth IRA contribution of $11K in 2020. Savings accounts are sufficiently funded.

My initial reaction is to allocate the entire amount to the investment account, as it should provide a rate of return greater than the interest expense. But, I hate paying interest and it would be nice to get rid of these car payments. I could then redeploy those payments to contributions to the investment account on a monthly basis.

I would love to pay off my mortgage, but this amount is not enough to cover the entire balance without depleting my savings, which I do not want to do. And while making a huge dent in the mortgage certainly helps, it doesn't improve my cash flow situation in 2020 and my retirement contributions will not increase.

Am I overthinking this? Should I just invest the money and continue to make the payments as scheduled? Am I just fighting the psychological aspect of having debt and paying interest? Would love to hear how others would approach this situation.

 

[FireflyTrance]

I was in the same situation and choose to invest the money. The stock market averages much more than 3.25% so as long as you don't want to take out the money during a down market you will fair better this way. We have a car payment that we could just pay off but we haven't since the interest rate is low.

I've got a question that I know is very subjective, but am going back and forth trying to decide the best course of action. I've received a cash payment that will allow me to pay off some debt (all interest rates of 3.25% or lower) or invest into a taxable account. I am already maxing out contributions to my employer retirement accounts, HSA account, and am planning on a two year backdoor roth IRA contribution of $11K in 2020. Savings accounts are sufficiently funded.

My initial reaction is to allocate the entire amount to the investment account, as it should provide a rate of return greater than the interest expense. But, I hate paying interest and it would be nice to get rid of these car payments. I could then redeploy those payments to contributions to the investment account on a monthly basis.

I would love to pay off my mortgage, but this amount is not enough to cover the entire balance without depleting my savings, which I do not want to do. And while making a huge dent in the mortgage certainly helps, it doesn't improve my cash flow situation in 2020 and my retirement contributions will not increase.

Am I overthinking this? Should I just invest the money and continue to make the payments as scheduled? Am I just fighting the psychological aspect of having debt and paying interest? Would love to hear how others would approach this situation.

 

[Mome Rath]

I think that is going to depend entirely on a person's philosophy. We hate debt, and hate paying interest, so if I were in your shoes, I'd pay the debt off. It gets you out of debt, and it's not relying on a return in the market (no return is promised in the market, in fact you can and do lose money (yes, only if you sell), as opposed to getting rid of a "sure thing" by ridding yourself of interest payments).

 

[SouthFayetteFan]

I've got a question that I know is very subjective, but am going back and forth trying to decide the best course of action. I've received a cash payment that will allow me to pay off some debt (all interest rates of 3.25% or lower) or invest into a taxable account. I am already maxing out contributions to my employer retirement accounts, HSA account, and am planning on a two year backdoor roth IRA contribution of $11K in 2020. Savings accounts are sufficiently funded.

My initial reaction is to allocate the entire amount to the investment account, as it should provide a rate of return greater than the interest expense. But, I hate paying interest and it would be nice to get rid of these car payments. I could then redeploy those payments to contributions to the investment account on a monthly basis.

I would love to pay off my mortgage, but this amount is not enough to cover the entire balance without depleting my savings, which I do not want to do. And while making a huge dent in the mortgage certainly helps, it doesn't improve my cash flow situation in 2020 and my retirement contributions will not increase.

Am I overthinking this? Should I just invest the money and continue to make the payments as scheduled? Am I just fighting the psychological aspect of having debt and paying interest? Would love to hear how others would approach this situation.

When I lost my job in 2015 I ended up with some large cash inflows due to severance, sick pay, bonuses etc. I chose to immediately payoff our car loan at that time. It was our lowest interest rate debt BUT eliminating a monthly obligation brought me peace of mind. I also chose to start paying down large chunks of our mortgage and continued to do so when other add’l cash presented itself.

In retrospect it’s easy for me to now calculate that these moves cost us thousands in potential investment income. Yet I don’t regret them at all because at the time they provided a guaranteed return and I’ve reduced my required monthly expenses to a very minimal amount. Had the timing and market results been different and I lost thousands I certainly would’ve taken that hard and so I avoided the risk of that happening.

So your answer here is very personal. If your initial reaction (INVEST) is what makes you happiest then do it! If you think that eliminating future obligations and a guaranteed return in interest savings makes you happiest then do that. Or perhaps do some of each and take a middle ground. No matter what, just know your logic behind the decision and potential outcomes and then don’t question yourself or have regrets down the line.

 

[RamblingMad]

So your answer here is very personal. If your initial reaction (INVEST) is what makes you happiest then do it! If you think that eliminating future obligations and a guaranteed return in interest savings makes you happiest then do that. Or perhaps do some of each and take a middle ground. No matter what, just know your logic behind the decision and potential outcomes and then don’t question yourself or have regrets down the line.

I think this depends on future expected returns. If the future expected returns are less than the interest rate you're paying on your debt, then it makes more sense to pay it off. If their higher, then it makes sense to invest. However, it's hard to predict the future.

Now, if you took the invest route in 1999, then you'll have had a decade of zero returns. Paying down debt or investing in alternatives to equities made far more sense.

At the end of the day, you have to do what gives you peace of mind.

 

[runwad]

Yep, everyone feels differently about things but I would use the money to pay off the car loans. I can't stand making payments!

 

[trenty]

Yep, everyone feels differently about things but I would use the money to pay off the car loans. I can't stand making payments!

That is my vote as well.

 

[SouthFayetteFan]

I think this depends on future expected returns. If the future expected returns are less than the interest rate you're paying on your debt, then it makes more sense to pay it off. If their higher, then it makes sense to invest. However, it's hard to predict the future.

Now, if you took the invest route in 1999, then you'll have had a decade of zero returns. Paying down debt or investing in alternatives to equities made far more sense.

At the end of the day, you have to do what gives you peace of mind.

Your comment kind of contradicts itself lol. Is it about money/calculations or peace of mind

I definitely agree with the last sentence though. Do what you feel is best and I’ll add to that and say know your logic and range of outcomes to avoid future regrets.

 

[Deffenm]

My goals for 2020 are to pay off my car, save 3 month emergency fund and then start investing in my 401k again! I also want to become more financially savvy so if you have any books, podcasts, websites for beginners I would greatly appreciate the recommendations. I read every post here but I am afraid to admit some of it is over my head. Like this stupid question, can I max out my 401k and a Roth IRA in the same year or am I Iimited? It won't happen this year but my goal for 2021 is to invest and save as much as possible.

 

[SouthFayetteFan]

Yep, everyone feels differently about things but I would use the money to pay off the car loans. I can't stand making payments!

That is my vote as well.

There are so many factors at play too! I feel like this one is less a "numbers" decision and more of a situational & psychological decision. When I made my decision to pay my car loan the logic behind it included things like: job security, age of my children, current living expenses, ability to payoff the loan in full, my wife's SAHM situation, and a bunch of other non-spreadsheet factors. If I was a single dude living in my parents basement at that time, the decision might have been different. If my daughters were grown and out of the house, the decision might have been different.

It is interesting to see how everybody processes things differently though! I would definitely be in this camp BUT I also feel like don't personally know enough to tell @Budzooka that it's the right call for him!

 

[SouthFayetteFan]

My goals for 2020 are to pay off my car, save 3 month emergency fund and then start investing in my 401k again! I also want to become more financially savvy so if you have any books, podcasts, websites for beginners I would greatly appreciate the recommendations. I read every post here but I am afraid to admit some of it is over my head. Like this stupid question, can I max out my 401k and a Roth IRA in the same year or am I Iimited? It won't happen this year but my goal for 2021 is to invest and save as much as possible.

Are you looking to chase FIRE or just "get more financially savvy". Just so you're aware those are two pretty different goals. Our thread here is all about FIRE which might be incongruent with where you stand today (and that's ok). I just don't want you to be reading all the thoughts here and judging yourself against the wrong group. Now if you're looking to chase FIRE you've come to the right place!!

My first thought on your comment is that I would not prioritize the 3 things you listed in that order. I'd probably not look to payoff the car at all to be honest (which might seem funny given my last few posts talking all about paying off car loans, haha).

If you want to share more, your age, marital/family situation, etc. could help us provide some additional thoughts on the situation.

 

[Budzooka]

There are so many factors at play too! I feel like this one is less a "numbers" decision and more of a situational & psychological decision. When I made my decision to pay my car loan the logic behind it included things like: job security, age of my children, current living expenses, ability to payoff the loan in full, my wife's SAHM situation, and a bunch of other non-spreadsheet factors. If I was a single dude living in my parents basement at that time, the decision might have been different. If my daughters were grown and out of the house, the decision might have been different.

It is interesting to see how everybody processes things differently though! I would definitely be in this camp BUT I also feel like don't personally know enough to tell @Budzooka that it's the right call for him!

Thanks for all the comments. I understand that it is a very personal decision and y’all have helped me that I need to just go with my gut. I don’t like car loans either, but the best situation for us is to invest for the long run and continue to service the payments. Yes, it will cost me some interest over the next couple of years, but this money will be working for me right away. No guaranteed return but don’t plan on touching it for another 16 years. Might be a different story if interest rates were higher.

 

[QueenIsabella]

If your mortgage is at a low rate, it might be worth investing the money instead. I would also keep the mortgage if there's chance you could need this money for something else in the near to mid-range future (say, in the next 5 years or so). Sure, paying off the mortgage would be a great feeling...but not if it leaves you cash poor (by depleting your savings), or if other expenses pop up where you could have used the money (roof replacement, job loss, etc.)

It's a very personal decision. What I told DH was, I wanted our mortgage paid off before he retired (he's 57). It could be the week before. We could pay it off tomorrow, if we wanted to, but are choosing not to. We also have enough net worth that DH COULD retire, but I don't want him to--not because I'm desperate for more money, but because we need the health benefits, and he needs to keep his mind and body active. He's an engineer--I think if he were to lose his purpose, it would depress his spirit. We also have 2 teens, with the attendant college costs around the corner. So, back to work, You!

 

[runwad]

My goals for 2020 are to pay off my car, save 3 month emergency fund and then start investing in my 401k again! I also want to become more financially savvy so if you have any books, podcasts, websites for beginners I would greatly appreciate the recommendations. I read every post here but I am afraid to admit some of it is over my head. Like this stupid question, can I max out my 401k and a Roth IRA in the same year or am I Iimited? It won't happen this year but my goal for 2021 is to invest and save as much as possible.

I think Clark Howard is great for beginners https://clark.com/podcasts/

He talks about a lot of other things besides investing but his motto is he wants you to learn from him so you can keep more of what you make. I just love listening to his podcasts. I am always singing his praises and trying to get people to listen to him, I think he's full of great advice.

 

[RamblingMad]

Your comment kind of contradicts itself lol. Is it about money/calculations or peace of mind

I definitely agree with the last sentence though. Do what you feel is best and I’ll add to that and say know your logic and range of outcomes to avoid future regrets.

It's based on expectations. The market is at 25x earnings. That's high. I can reasonably expect to make 4-5% annual returns, so I can compare my debt interest rate to those expected returns. The problem is what if I'm wrong and I make lower returns. That's where my peace of mind comment comes in. The math is based upon expectations. If those expectations are wrong, then the math doesn't hold.

https://www.wsj.com/market-data/stocks/peyields

 

[RamblingMad]

My goals for 2020 are to pay off my car, save 3 month emergency fund and then start investing in my 401k again! I also want to become more financially savvy so if you have any books, podcasts, websites for beginners I would greatly appreciate the recommendations. I read every post here but I am afraid to admit some of it is over my head. Like this stupid question, can I max out my 401k and a Roth IRA in the same year or am I Iimited? It won't happen this year but my goal for 2021 is to invest and save as much as possible.

I suggest this book: The Little Book of Common Sense Investing. That should be all you need to get started.

 

[Deffenm]

Are you looking to chase FIRE or just "get more financially savvy". Just so you're aware those are two pretty different goals. Our thread here is all about FIRE which might be incongruent with where you stand today (and that's ok). I just don't want you to be reading all the thoughts here and judging yourself against the wrong group. Now if you're looking to chase FIRE you've come to the right place!!

My first thought on your comment is that I would not prioritize the 3 things you listed in that order. I'd probably not look to payoff the car at all to be honest (which might seem funny given my last few posts talking all about paying off car loans, haha).

If you want to share more, your age, marital/family situation, etc. could help us provide some additional thoughts on the situation.

My ultimate goal is to FIRE. I am the main provider in the family and early in 2019 my job was eliminated. Luckily I found a different job within the company before my 60 days were up but it really scared us and realized we need to get our finances in order as we had no savings. I am 42 and my husband is 46. My husband works part time only due to some mental health challenges. My reason for paying off debt is so that I don't need to make the income I make now. I work a high stress job and I would like to quit this job by the time I am 50 and work a job I enjoy even if it means making a lot less. We only owe $9k on my car, should be able to pay off by end of April and owe $57k on our home. That is only debt we have. We only have $1k in savings and I have $80k in my Roth 401k. We have a budget with no unnecessary spending, we don't even have cable or streaming services. Any advice or guidance is appreciated.