Friday, June 3, 2016

Starting Point

Our journey is about to start.
Well every good financial blog needs numbers.  Numbers are what you can use to measure and track over time to see your progress.  Before we can track though, we need a starting point.  We started this blog in late May but didn't post numbers on post number one as we had a starting point but not a month two as a reference guide.  Now we do.  Sadly as you will see we have a long way to go.

There are a lot of different ways to track this and we've given it some thought.  After looking at different scenarios though we decided on Monthly Expenses vs. Potential Passive Income.  Monthly Expenses are easy to measure and for the sake of this exercise do not include one time items.  It is more what our monthly budgeted expenses are.  For example if we take a vacation, or buy something big (not that we have those plans) it does not skew what would be, or could be our budget going forward.  Potential Passive Income is taking the sum of our investments and applying the 4% rule.  Additionally we have a second source of passive income that fluctuates month to month that we add to the 4%.  Once our passive income is higher than our expenses we could walk away from employment and feel secure in our choice.

Below is our first chart:

Now a couple of notes.  June is estimated at this point.  We know the Expenses but Passive Income is an estimate.  I will update once we finalize June but really wanted to get the chart started.  As for relative values we will call Month 1 expenses 1.0.  Everything going forward will be from this 1.0 starting point.  As you can see April and May have Expenses at 1.0 and Passive Income at .21.  This would mean we could cover only 21% of our current expenses from Passive Income (PI) if we quit working and utilized PI only.  We worked hard in May to get rid of some expenses and for June the Expense (E) number has dropped to .92.  We are still estimating PI at .21.  The movement alone though of E will put PI at 23% of our the expenses.  Still a long way to go but every journey starts with steps.

So what does this chart mean to me?  It means that despite being decent savers through the years we failed on the expense side.  The expenses must come down and the investment income must go way up.  It probably means years of hard work but at least a plan is in place.

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