This morning, as I sat down to write the blog, I said to myself, “Hey, wait a minute, the blog is already written!”
And it was, in the form of a comment a Coffeehouse Investor submitted in response to my August 21 entry of keeping track of the infamous burn rate.
Ever since the Coffeehouse Investor was established, about 12 years ago, I have encouraged folks to keep track of their burn rate, in the form of a financial plan that allows direction on reaching goals. This exercise is by far the most important of the three Coffeehouse principles.
In the below post, Lou shares a journey he and his wife embarked on many years ago to reach financial independence. His comments are so profound that I didn’t want them buried at the end of a previous blog. Here is his story . . .
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Being able to retire early was a goal of ours since the early 1980’s. In the beginning, we just lived below our means and invested what was left over. Most of the time there wasn’t much left over. The kids were young, the mortgage was expensive, etc.
In 1991, we were ages 39 & 36, we really became focused on being able to retire early if we chose to or if we were forced to. The economy was very bad. People were losing their jobs… even people in their 50’s who were very well established in their jobs were being encouraged to quit (layoff’s, golden handshakes, early retirements, etc.) It became quite apparent to me that even though companies claim to be “Equal Opportunity Employers” they really don’t want you on their payroll when you are in your fifties. We decided that we wanted to be able to retire in 20 years. Our target was the year 2010 when we would be ages 58 & 55. In order to achieve this goal we decided to set up a more measurable investing plan. We would still live below our means but now we had a yearly goal that we strived to meet. Our plan was to invest 10% of our gross income that year and then increase the amount by 1% each year thereafter. We found that this was fairly easy for us to accomplish, in fact we far exceeded that…. probably because we were already in the mode of living below our means, but also because any time one of us got a raise in income we also raised our investment amount.
In 2001, even though the stock market was down, we were in a good position to meet our target of 2010 retirement. I realized that I needed to get a better idea of what our “burn rate” would look like if we decided to stop working. I decided to track our spending for a few years and that would give me a basis for estimating our spending if and when we decided to leave our jobs.
I started tracking our spending using the popular Quicken software. I found that Quicken wasn’t very user friendly so I tried using Microsoft Excel. That didn’t work out as easy as I had hoped so I went back to Quicken.
In January, 2006, we were ages 53 & 50, we felt that we were in a financial position to retire. This was a major decision so we decided to work with a fee-only financial planner to see if he could confirm this, which he did! It was very important that we had a good handle on our “burn rate”, which we did because of the tracking that I had been doing.
To make this long story short, my wife and I retired in January, 2007 at the ages of 54 & 51. This was 4 years earlier than we had planned. In 2008 we purchased a vacation home in Florida so we could get away from the New England winters. Knowing our current “burn rate” and how a purchase of a second home would affect it was very important in making this decision.
I still track our spending and I expect that I always will, but I’m no longer using Quicken. I found something simpler and better for my needs. I am now using ClearCheckbook.com which is a free on-line money management program. There is also a premium version that offers more features but I’ve found that the free version does everything I need and it’s very easy to use. You have to register and create a password before you can use it. Then you create your accounts that you will be tracking. I think you can track as many accounts as you like but I’ve found that three accounts (Checking, Savings, and Cash out of pocket) works for me. Next you create your categories that you will be tracking (like Clothing, Gas, Groceries, etc.) You can create as many categories as you need for your situation. Once you’ve created your accounts and categories you can enter your transactions (deposits & spending) just like you would with a checkbook register. After recording some transactions you can then start making meaningful reports. I found that the one report that gives me everything I need is the Category report with a report type of Text.
Living below your means, saving for a rainy day, having a diversified portfolio, having a goal, tracking your spending …..it worked for us. My wife and I had decent jobs but we were not highly paid professionals. We just used some common sense.
I hope this helps someone.