Oh my gosh. We’re practically half way through August. FinCon 2017 is just around the corner.
Sadly, Mrs. Groovy and I aren’t attending this year’s conference in Dallas. Too much on our plate. (I know. Lame excuse.) But if we were attending, I’d be nervous as hell. After all, to the blogging community, I’m a purple cat who draws financial inspiration from a cannibal, a sweet transvestite, and an uptight college dean. And let’s face it, that’s flat-out weird. If I didn’t make a good impression at a breakout session or a mixer, the notion that I was a buffoon would irrevocably move from suspicion to confirmed fact. Ouch!
Thankfully, the one ace in the hole I have is that I really know my shit when it comes to financial independence (FI). Mrs. Groovy and I retired last October and so far we’re dominating this retirement thing. So, yeah, if I ran into such FinCon luminaries as Paula, Joe, Erin, Joshua, Fritz, Bianca, and Steve, I’d be stammering like a damn fool. But at least they wouldn’t be able to find fault with my financial acumen.
Okay, let’s suppose for the moment that you’re going to FinCon this year. And let’s further suppose that you don’t want to completely embarrass yourself at the world’s most esteemed conference of money nerds. Well, you better know your financial shit.
Here, then, are the five things every self-respecting FI enthusiast should know.
1. Your monthly living expenses. This is everything you have purchased for the year broken down by month. And I mean everything—from toe fungus medicine and apple cider vinegar to zombie makeup and llama feed. I use a Google Sheet to record my expenses. Through the end of July, Mrs. Groovy and I have spent a total of $18,851.72. That brings our average monthly living expenses to $2,693.10.
2. Your gap. This is the difference between your household income and your household expenses. You need to have a gap if you’re ever going to save for retirement. And you need to have a large gap if you’re every going to retire early. For the best analysis I’ve ever seen on this crucial number, I urge you to read this post from Ms. Montana. Great stuff. Our current gap is roughly $600 a month. We’ve budgeted $3,300 a month for retirement income this year (pension plus portfolio income) and we’re spending roughly $2,700 a month.
3. Your net worth. This is the difference between your assets and your liabilities, and it’s a great indicator of how well you’re managing your finances. If your net worth is going up every year, keep doing what you’re doing. If your net worth is stagnant, or if it’s taken a hit for two or three consecutive years, you’re doing something wrong, and it’s time to seriously reevaluate your income, spending, and investing style. I can’t tell you what the Groovy net worth is (Mrs. Groovy would kill me), but I can tell you it’s gone up $77K so far this year.
4. Savings rate. This is the amount of money you’ve socked away in various long-term savings and investment accounts for the year divided by your total household income for the year. In 2016, Mrs. Groovy and I put a total of $56,519.86 into our Roth IRAs and workplace retirement accounts. Our household income for 2016 was $110,590.04. Dividing our savings by our gross household income, we get a savings rate of 51%. If we used net household income rather than gross, our savings rate would be 62%.
5. Years until FI. This is the number of years you’re away from accumulating 25 times your annual living expenses (i.e., your FI number). A crude way of calculating this number is as follows: Subtract your net worth from your FI number and then divide the difference by your projected savings for the year. So if your FI number is $1,000,000, your net worth is $500,000, and you’re on pace to save $25,000 this year, you’re no more than 20 years away from FI.
Okay, groovy freedomists, that’s all I got. What say you? Are these the five things every FI enthusiast should know? And if they are, do you have the answers at the ready? Do you know your financial shit? Have a great weekend, and enjoy another episode of Talking Trash. Peace.