Retiring Early – February 2014 Cash Flow Summary

February was a great month.  Hopefully, it was also a trend setter.  For the first time since I started tracking my income and expenses 3 years ago my non-salary income managed to exceed my expenses. Better yet, I’m sitting on a boatload of uninvested cash that’ll increase my passive income once I get it invested.  More on that later.

Expenses ($3047) ($2747)

My goal is still to get expenses down below $2500/month, which really shouldn’t be that difficult considering my house is paid for.  And had it not been for an unexpected $600 dental procedure for my wife, we would have met that goal.  Here are the numbers:

Groceries $579
Restaurants $50
Prop Tax+Ins $200
Utilities $261
Cable $0
Cell Phone $80
Internet $63
Doctor $685 
Pharmacy $13
YMCA $142
Gifts & Donations $33
Pets $0
Shopping (clothes, books, etc) $187
Pre-school $211
Entertainment $29
Cord Blood Registration $0
Misc $28
Gas $97
Auto Insurance $0
Home Improvement $126
Garden $222
Vitamins $30
Library Fines $0
Bike $11
Total $3047

Groceries and restaurants dropped from $800 to $629, a good improvement but still not enough to meet my goal (especially considering February is a short month).  We tracked this expense very closely because I was flabbergasted by our expenses in January, and I learned a few things.  First, we had gotten completely lazy with our meal planning.  This led to buying too many things in small quantities which tends to be more expensive.  Second, we didn’t have any “filler” meals.  What I mean by this is that we didn’t have any cheap meals that mostly consisted of cheap staples such as beans, rice, eggs, and lentils.  I’m all for enjoying good food, but simply having one or two dinners a week using inexpensive ingredients like these can drive monthly expenses down quite a bit.  Plus, those staples can still taste pretty damn good if you prepare it well.

I also learned that we’re wasting entirely too much food.  Rather than eating leftovers for lunch the next day, I would normally fix a sandwich to take into work.  Then, a few days later, we were throwing out a tupperware container of that previous dinner.  This was convenient while I was building up my hot compost pile for my garden, but it’s certainly not financially wise.  Just recognizing this has resulted in an immediate improvement.  I’m targeting closer to $500 in March for groceries, so we’ll see.

Utilities remained high.  This covers our gas, electric, water, sewer, and garbage. It appears about $200 of the $279 goes to gas and electric.  It’s cold here so the large bills aren’t too surprising, but I still want to improve.  The warmer months coming up will have an immediate positive impact, and we rarely run AC in the summer here in Colorado.  Still, I’ll be taking some time to see what improvements we can make to be more efficient. We’ve already replaced all the old wood-framed windows, but I think there are still quite a few leaks around my house letting in outside air, and I know the attic can be greatly improved with some insulation.  With that all said, I’ll be limiting how much I invest into the house because it appears we won’t be here for more than one more winter.

Our internet bill was $63, but this included an initiation fee for the new service after we cancelled our cable (which doubled as internet).  In the future it’ll be about $35/month.

As I mentioned above, we had a very expensive and unexpected medical expense.  Dental, to be exact.  Not sure there’s much I can do here, other than monitoring my wife to make sure she’s flossing every night.  That’s probably healthy for our marriage, right?

“Shopping” remained upwards of $180 this month. It turns out my wife spends a lot more money on clothes for her and the kids than I realized (considering I’m wearing a free marathon t-shirt from 2006 right now and it’s one of my newer shirts, I think I’m off the hook for this category).  I’ll keep an eye on these expenses, but I’m not going to push on it right now. When it comes to frugality for the entire family, I find it’s healthiest to pick my battles.  We certainly aren’t dressing our kids in Abercrombie (is that still a popular and expensive brand?), so we’ll just keep an eye on it and see if there are opportunities to drive this expense down a bit.

The last major expense was gardening, where I spent $222.  This included all of the costs for my small indoor aquaponics setup, as well as a 4’x8′ raised garden bed I built.  I’ll be spending a bit more in March as I’m setting up an outdoor barrel aquaponics system, but that shouldn’t be more than $200 since I’m in the process of purchasing most of the material on Craigslist. That should all pay for itself in the first growing season with fresh and organic vegetables.

In the end, I’m happy with our expenses this month.  We’re one unexpected medical expense away from being under our $2500 monthly target, and there were still several areas I hope to improve upon in the coming months.

Income (not including my full-time salary) $3,446

Now the fun part… Here’s a list of my diversified income portfolio and nano-businesses.

Dividends $1,071
Rental $0
Hard Money $0
Lending Club $131
Prosper $190
Real Estate Private Equity #1 $208
Real Estate Private Equity #2 $0
Realty Mogul $0
Nano-business “o” $670
Nano-business “w” $125
Nano-business “e” $886
Nano-business “d” $160
App Development $3

Our income was great this month considering I didn’t get nearly as much done as I’d hoped.

Dividends – Dividends dropped a bit in February.  This is because I sold $50K of a dividend stock that has doubled since I bought it in 2012 nd I consider overpriced now, and I’m in the process of reinvesting in some other companies.  Dividends should go up a few hundred dollars in March.

Rental House – We finally sold our rental house for $190K, which has left quite a bit of cash sitting idle as I figure out where to invest it.  Put another way, between the house sale and the stock sales, over 25% of our total assets are sitting in cash right now and not making us any money.  Once that gets invested, even if only in 3-4% income earning investments, that should increase our monthly passive income by $1000 or more.

Hard Money – No additional investments on hard money this month. I had a deal lined up, but ultimately decided to walk away from it.  The numbers looked OK, but the deal seemed rushed and it made me nervous.  So I took Warren Buffet’s advice when he said “Rule #1:  Never lose money.  Rule #2: Never forget rule #1.” There’s no rush, I’ll get the money invested when the time is right.

Real Estate Private Equity #2 – I’m on the wait list for this investment. It’s a minimum investment of $100K, with an expected return of 11%-12%.  Assuming I don’t change my mind during the 3-4 months of sitting on the wait list, that will net us about $1000/month.  Along the same topic, I’m also in the process of investing in a 3rd real estate fund which should return about 10%.  I’ll add that to the tracker once the money is invested.

Realty Mogul – It appears that I’ll be getting my first 10% monthly check of $42 on March 15th.  That’s a 3-4 year investment, so it should show up from here on out.

Nano-Businesses – Our nano-businesses had a great month.  My wife’s solo business made almost $700, which is awesome considering it’s fun for her and doesn’t take up much time.  Usually just a few hours here and there when the kids are at school or in bed.  We also made over $800 on our new business that we do together, which is also awesome considering we spend less than an hour each night after the kids go to bed and we have a good time doing it.  I would gladly spend more time doing it, but there’s only so much it can scale right now due to some limiting circumstances.

Summary

We made more than we spent even after excluding my salary, so I’ll declare success.  And there are still some significant rooms for improvement.  Specifically, getting our medical expenses stabilized and getting my massive stash of cash invested in income earning investments.  My goal remains to have a 50% savings rate after quitting my job, which I think may be a stretch in the short term, but definitely possible after I quit my full time job and have more time to spend on cost-reducing and income-earning hobbies (you know, the things I mentioned in my last post).

How are y’all doing in your own journeys?

As always, don’t forget to check out and comment on the progress of other readers.

[UPDATE]: I initially reported $3047 for my monthly expenses, but it turns out the dentist had made a mistake and charged us $300 more than they were supposed to.  So expenses for February were actually $2747.  


34 Responses to Retiring Early – February 2014 Cash Flow Summary

  1. Joe says:

    Wow, great job with the nano businesses. That’s a significant portion of your expense.
    We are doing okay. We’re thinking about buying a house with cash. If we do that, our monthly expense would dropped quite a bit. We might have to wait for the market to cool a bit, though.

    • I just read your post about buying a house with cash. One thing I didn’t see mentioned directly is that it also locks in an eternal rate of 0% interest. Everyone likes to focus on the low interest rate we still have today and how you can make more by investing that money, but what happens if rates go up to 8% in a few years and you want to move? You can’t carry over your current mortgage to the next house. Even if you don’t upgrade, you have to close your current mortgage and open another one. Your reward is a few thousand dollars of fees and a higher monthly payment for the same value house.

      In my case, I can move to another house after selling this one and I don’t pay the bank a penny to open a mortgage, and my monthly payment remains at $0. If inflation or deflation hits, my house rides that wave but it doesn’t matter to me. It changes nothing. that’s a cool place to be.

  2. FFdividend says:

    WOW passive income is greater then expenses. that is amazing. great job.

  3. TK says:

    Good job – one thing to pay attention is the unexepected expenses. A lot of times when people craft their budgets they don’t incorporate the “unexpecteds” and over time it becomes apparent that the unexepcteds are quite expected – its just the type/mix that may change (i.e. if you have $600/mo of unexpected whatever each month then that is probably a recurring number).

    • I’ve thought about this as well. We’ll see over time whether it becomes a trend. It’s easy to rule out once or twice, but if something different comes up every month then at some point we just need to budget for it.

      On the other hand, my income is also limited by the fact that I’m still working. So even if I do need a few hundred bucks here and there for things like this, it shouldn’t be difficult to make that money when I have an additional 200 hours per month freed up.

      • Debbie M says:

        I budget for some of these items:
        * health expenses
        * buying my next car
        * car upkeep and repair
        * house upkeep and repair
        * long-term fun = expensive things I might want like vacations, electronics, furniture, classes

        Other good funds to consider are unemployment funds and opportunity funds (the latter of which Get Rich Slowly just wrote about).

        I just add some money every month (just a small amount of money for some of these things like health expenses and my next-car fund). At first it’s not enough to cover very much, but after a while it can really add up.

  4. insourcelife says:

    I can’t wait for a day when I can write a post like this myself… It’s still several year away though. Congrats on a great month!

  5. BNL, watch out for the private equity funds. I’ve been researching them and talked to a lady who’s been in the industry for years, she was very helpful and told me all kinds of things about these funds. Many of them are OK, but they can run into snags. She had one story where the man who ran the fund died and his successors had no idea what they were doing.

    I may still do them myself, but I’m feeling a bit cautious.

    She also told me about some first trust deed investors who weren’t in a fund but were doing hard money lending and they got sued for breaking small laws, and the suit succeeded. It kind of spooked me a bit.

    But yea, not too many other places to earn 8-10%.

    • Yes, I agree 100%. This is actualy the reason I haven’t offered up names to the funds I’ve invested in publicly. Although I constantly warn people that I’m not an investment advisor and even if I was my site here shouldn’t be taken as advice, still I know that some people would be influenced and I don’t want that responsibility.

      There are many potential problems with these funds, particularly since most are not audited by the SEC. The worst case is that the fund owner is malicious, and willing to steal your money. Past that, they could be incompetent. Beyond that, they could face a tough industry or an economic downturn. And finally, without a good business plan something like a single sickness or death could lose you money. Like you said, all kinds of stuff to look out for.

      The funds I’ve invested in have clearly documented teams of people, a formal prospectus, 3rd party accounting audits available, a history of profits, and recommendations from both borrowers and lenders. For me, having these things are just a ticket to entry. After that, I’ve talked to the owners, ensured my questions are not only answered but that they are answered in a way that makes me confident the fund manager is thinking one step ahead.

      And even after all the time I’ve spent on reviewing these things, I’ve passed on most funds and have kept my investments limited to amounts I could afford to lose without facing financial hardship. Any fund worth it’s weight in salt will tell you to do the same thing. And if they don’t, I’d question their motive…

      • GE Miller says:

        Why take the risk vs. investing in a publicly traded REIT with required 90% profit payouts (i.e. NLY pays out 10.68%) that has strict SEC filing requirements, transparent accounting, analysts, etc.?

        Seems a bit risky for not much/if any additional return – but just trying to understand why real estate, but not REIT’s (what am I missing?).

      • @GE

        Most REIT’s use leverage with variable rate interest to achieve their returns. So, the lower the interest rates are, the more return they can get. As interest rates rise, their return drops. With that, their dividend drops as well.

        Let’s use an example. Say you buy a $10 stock of an REIT that returns 10% right now ($1/year). Then one day interest rates rise, and now the REIT can only return $0.50 per year. The market tends to still want it’s 10% return, so the value of the stock drops to $5, so it returns to a 10% yield. The problem is, now I’m stuck with a 50% drop in capital, as well as a 5% yield on cost (YOC).

        Despite this, REIT’s can still have their place in a portfolio. But in my case, I want to see my dividend payment rise month over money. This is why I like dividend growth stocks, and don’t like REIT’s so much.

        The RE funds I’ve invested in don’t leverage variable rates. They take in investments like mine, give a preferred return of 6%, then loan them out at 12%+. They do what they can to mitigate risk of losses through foreclosures, pay themselves a set rate after I get my 6%, then give me the rest after they’ve paid themselves (and after I got my 6%). Variable interest rates have no primary effect, although they do have a secondary effect in how they impact borrowers likelihood of using my money vs. a banks money.

        Both investments have risks. The funds just fit better in my own portfolio and my financial goals.

      • Just to clarify, not all REITs use leverage and invest in risky interest rate spreads. You are talking about mortgage REITS – they are very risky. Equity REITs on the other hand many of them don’t use leverage and they just own real estate and rent it out. They are much safer but yes only pay 5-7% divy’s.

        Lately I’ve been feeling the need to stay away from private equity funds like those BNL describes, because they just scare me too much. I’d rather do my own 1st TD investments, buy more real estate (the one duplex I own is my best investment by far), and continue to invest in the stock market and REITs which I like (not mortgage REITs… equity REITs).

      • GE Miller says:

        Looks like you do have some mREIT exposure as well (AGNC).

        Would be curious to hear about:
        1. How one finds, vets, and reduces risk in a private equity real estate investment.
        2. The nano businesses (maybe you’ve covered this already?)

        I totally get the part about not wanting others to follow your lead (which is why I don’t do much on my own blog around specific investments), but speaking in a general sense about the opportunities/experiences/assessing without giving fund names would be of strong interest. Heck, you already have a complete list of each ticker you own. =)

      • @Brian – Thanks for clarifying. I’ve only invested in mortgage REIT’s up to this point, so that’s just what was on my mind. You are absolutely right that eREIT’s do not have the same dependency on interest rate. Of course they do come with their own risks.

      • @GE
        Regarding my vetting of the funds I’ve invested in and are planning to invest in, I tried to give a high level description of how I vet them up above:

        “The funds I’ve invested in have clearly documented teams of people, a formal prospectus, 3rd party accounting audits available, a history of profits, and recommendations from both borrowers and lenders. For me, having these things are just a ticket to entry. After that, I’ve talked to the owners, ensured my questions are not only answered but that they are answered in a way that makes me confident the fund manager is thinking one step ahead. – See more at: http://www.bravenewlife.com/03/retiring-early-february-2014-cash-flow-summary/comment-page-1/#comment-14120

        That’s really just an outline of what I look at. I read the prospectus and any other documents cover to cover, and that usually leads to a list of questions that I then discuss with the fund manager directly. If they don’t want to take the time to talk to me, then I’m not interested in investing with them.

        Let me know if you have specific questions.

  6. Oh yea and one more question — considering the Lending Club income to be reliable seems difficult. Yes you are getting the income but who knows about the default rates over the next years. Those unsecured loans seem kind of scary. You are pretty willing to try new things, like Realty Mogul, etc., maybe I need to be a bit more adventerous and branch out some more.

    • Everyone has their own level of risk aversion. I’ve always been very aggressive with my investments because I’ve considered my greatest asset to be my ability to go back and earn money if I need to. In other words, I like to take chances knowing that most likely I’ll be rewarded, and even if I’m not I can go back and earn more money. As I’ve gotten closer to retirement, I’ve slowly become a bit more conservative (although not terribly conservative relative to many people).

      Regarding Lending Club, I started my investment over 2 years ago now, and only after 18 months or so did I consider the interest a reliable income. For over a year now I’ve seen the interest rate paid swing between 12.3% and 12.8%, so it’s pretty stable (that’s a much lower standard deviation than the S&P). Also, LC and Prosper only account for about 1% of my total invested capital. If it were more, I’d probably be a littler more conservative about how I treat the income.

  7. Evan says:

    Any chance we get a bit more info about the nanos?

  8. You’re making me feel normal! We spend about $3,000 a month and some of the other early retirement blogs made me feel like a glutton because I couldn’t live on $1200 a month. I too am aiming to reduce our expenses to $2500/month. Best of luck to you!

  9. Dr. Doom says:

    I had a question about your 50% savings rate goal after quitting your job. Why?
    I recently read your post about having enough aphids and was interested in understanding the evolution in thought.

    • I’m not trying to speak for BNL but I think a 50% savings rate is important in retirement (or some good savings rate) because at age 35 the retirement window is so long, a lot could go wrong. Investments could fail, living expenses could rise, other unforseen stuff. Important to continue to build savings and protection while retired. If you are 75 and only have 10 years left, fine, but 35 and have 40-50 years left, you need to keep protecting your sustainability of retirement. Just my thoughts.

      • Dr. Doom says:

        Although I understand the concept of minimizing risk, I still think perhaps this is too conservative? BNL is already living off of dividends only, which doesn’t take into account any stock market rises at all in the future — he’s effectively already on the very safe side of the already conservative 3% withdrawal rate. It seems like overkill to me, which is why I was asking for clarity.

      • @Doc

        Bryan is right that I want to minimize risk, and you are right that the dividends only account for the income and future capital growth helps cover inflation (this the concept of people retiring on “dividend growth stocks”).

        But that’s not the whole story. There are a few other reasons I’ve set a target of 50% savings rate besides building a margin of safety.

        Specifically, the 50% target was meant to set guardrails to protect me from myself. What I mean by this is that if I didn’t set any target at all, it would lead to unnecessary arguments between me and my wife. We’re very much in agreement on our financial goals, but I lean strongly towards the “spend nothing, invest as much as possible” side of the road, and she is closer to the “we’ve already achieved FI, so why keep investing now” side of the road. This is where guardrails are good, so we can agree on some limits and never sway from those. Perhaps a better way to describe the goal would be to say that we want to save 45%-55%. This way, it dividends drop, we work to get our savings rate back up. If we run into huge growth in our income, we are free to spend the money without argument.

        The other thing to consider is that some of my investments will not track inflation. For instance, some of my investments are in fairly fixed rate returns such as Lending Club, Prosper, and some of the Private Equities. If those just cover my expenses, then inflation means that they won’t quite cover them next year. So realistically, you need to subtract 3% or so of the returns and assume they must be reinvested to cover inflation.

        50% is just a target, it could probably be 30% and we’d be fine. The other thing is that at 50%, if it grows faster than inflation but we stick with 50% as the goal, that means each year will have more discretionary spending – which isn’t such a bad thing.

        I dont know, maybe this doesn’t make sense to some people. But my wife and I come from very different financial backgrounds, so setting ground rules and agreeing to them has always been good for us when it comes to finances. When we were first married, we argued about money way too much. Nowadays, it never happens. And that is not because we have so much of it, but because we agree on how to handle it upfront.

      • Lifehacker78 says:

        Brian, good analysis. I’m in a similar boat where my expenses are exceeded by income but I’ve struggled to know “where to stop.” My analysis has just been, “keep investing it all.” :) it would be interesting to get outside perspectives. Has anyone seen a place where you can post your expenses / income and get feedback from other users?

      • @Lifehacker78:

        Yes! http://bravenewlife.com/forum/

        It’s not a very busy forum now, but I specifically set it up for tracking expenses and getting others’ feedback. I’d love to have you join the community and help build the conversation.

  10. Feel free to let me know if you aren’t comfortable offering this info but I would love to know what types of dividend stocks/funds you are investing in. I’ve recently starting reading about them but would love to learn from someone with some hands on experience. Since I noticed that your dividend income was pretty high I wondered what you have chosen to invest in. No worries if you don’t want to share, but I thought I would ask.

    • Under the passive income tab (top menu) BNL lists his holdings.

      • Yep. However, that list is a little out of date. Right now I’m investing my cash from selling my rental, and once that’s done I’ll update the list of my investments.

        Obligatory warning: None of that transparency is meant to be read as a recommendation to anyone else. I only list it because it helps motivate others to see what’s really possible, and also because people constantly ask about it so it’s easier to point them there. :)

  11. Like Evan up above, I’d like to second the interest in learning more about your various nano-businesses.

    Certainly you sold one large position, any idea what other DG positions you are currently looking at and see particular value in at this point?

    One last note, on your Passive Income page, your Lending Club income calculation seems to be a bit off. Should be $1,440, not $144, correct?

  12. I’ll echo the comments above in that I’m very interested in hearing more about your nano-businesses!

  13. nice! expenses is lesser than passive income. that is amazing. great job!

  14. Prob8 says:

    This was a very interesting post, BNL. I’d like to hear more about your aquaponics and garden adventures. Currently my food bill is ridiculously high due to a mostly organic diet for a family of 4. I’m hoping your experiment will show us there are significant savings to be had by growing your own – as well as tips on what to do and not to do. Oh, and pics would be great!

    Not that you need to share more, but I would also like to hear more about how you and your wife deal with frugality/spending issues. I also feel I have to pick battles in that department and its always good to hear how others handle that.

    • I’ll definitely be writing more about the aquaponics and gardening. For now, I’ve mostly built my outdoor barrel aquaponics setup, but it’s still too cold to grow outside. I’ve got my spring seedlings growing in pots indoors. I’ll hopefully be building a small greenhouse soon, which will get those plants outside.

      Long-term, after we move out of Colorado, I have a goal of getting the majority of our food growing from aquaponics, a food forest, and possibly some other homesteading activities. Not sure if that will involve meat or not.

      What kind of “frugality/spending” issues would you like to hear more about? My wife and I used to disagree regularly, but I think that increased awareness from each of us has allowed us to grow closer together on how we spend, what we spend our money one, and how those decisions affect us both positively and negatively. If you have any specific examples, I’d be happy to elaborate on how my wife and I deal with it.

      • Prob8 says:

        Perhaps you’ve already addressed the issue when you talked about increased awareness. In my house there always seems to be a struggle with me wanting to be less wasteful, more efficient and less spendy overall. My goal to get spending down often leads to disagreements about what a happy/healthy life really costs. You mention clothing in the post which is fitting because I am routinely met with resistance at the suggestion that women don’t need, for example, a closet full of shoes.

        I guess I’m wondering if you’ve found any particular things helpful in getting your wife to spend less or recognize inefficiency?

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