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Cash Flow
Old 06-22-2010, 05:00 PM   #1
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Cash Flow

DH has given his final notice, so last day is July 6. Now that it's coming down to it, how do you change your mindset from saving to spending? We have always lived within our means, never taking money out of the bank except for large purchases (car, etc.) Now I'm just supposed to WHAM start taking money out every month? The thought terrifies me!

We will need to buy him a car (he wants a truck, actually) because he has always had a company car. We have the cash available to pay for it, but I have always been a sucker for 0% financing. Give me 12 months same as cash at Home Depot, I'm there! But the thought of the monthly payment is depressing. It looks like some of the trucks have rebates that don't kick in if you finance with the 0% financing, so we would certainly take that into account.

So which is better? And how do I make myself feel better about going into a withdrawal mode instead of a deposit mode??!!
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Old 06-22-2010, 05:22 PM   #2
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Well, you could pay yourself a paycheck at the beginning of each month if you want to. Just move a month's worth of spending money from savings to checking. That sort of mental game works for me, though I don't know if it does for other people.

I was a little worried about it at first, too. I thought I might "go wild" and spend too much. Instead, I have been spending less than I did last year* so nothing much has changed.

As for the car, it's all up to you and what you prefer. I preferred writing a check for my car rather than signing up for the 0% payments. Do what you want.


*(other than buying a car with money I had set aside for ten years and planned to buy as a retirement present to myself)
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Old 06-22-2010, 05:33 PM   #3
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What W2R said. I got a paycheck every other week for my entire w*rking life so I set up an automatic transfer from Vanguard on that same schedule.

Won't there be a period after July 6 when your DH gets his final paycheck and accrued vacation time? You should be able live off that for a few weeks as you transition to the withdrawal phase.

Many of us who made the leap to FIRE have reported our first year was a period of squeezing every nickel before spending it. Once you have a year or so under your belt and see that yes, you really can live comfortably off your nest egg, you will likely loosen up a bit and stop worrying so much about what might be your favorite flavor of cat food.
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Old 06-22-2010, 05:53 PM   #4
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Many of us who made the leap to FIRE have reported our first year was a period of squeezing every nickel before spending it. Once you have a year or so under your belt and see that yes, you really can live comfortably off your nest egg, you will likely loosen up a bit and stop worrying so much about what might be your favorite flavor of cat food.
I have not been able to really understand this. If one is doing total return/asset allocation investing, and markets are not delivering much in terms of total return, and cash flow from dividends and interest is sparse, from where does this confidence come?

Ha
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Old 06-22-2010, 07:07 PM   #5
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We are about a month ahead of you, DH retired on 6/1/10 and that's when we got his first pension check. Yes, it's a big adjustment compared to the larger bi-weekly paychecks. On his salary we were saving at least half a paycheck every month.

I have been tracking expenses for over 2 years so I know we can make it just fine on the pension. I'll miss the hefty addition to savings every month!

We're doing well in this first month. All the bills are paid, I bought the normal groceries, we ate out a few times (used a free entree card once) we even went to a live musical play (ok, my son was the sound designer and had comp tickets) and we still have 15% of the pension deposit left to spend. 7 days left in the month and I plan one more weekly grocery shopping and DH needs to fill his gas tank. I'll be thrilled if we have something left to put in savings.

It sounds funny but one of the biggest adjustments for me, the numbers person in the family, is that this is the first time that we are budgeting monthly instead of every 4 weeks. That part is easier for monthly bills, but needed some reconfiguring for groceries, gas and cash. Not a problem, I enjoy all this and like to keep track and see the results.
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Old 06-22-2010, 07:09 PM   #6
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I have not been able to really understand this. If one is doing total return/asset allocation investing, and markets are not delivering much in terms of total return, and cash flow from dividends and interest is sparse, from where does this confidence come?
I find, after the second Margarita, that ...
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Old 06-22-2010, 07:34 PM   #7
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I have not been able to really understand this. If one is doing total return/asset allocation investing, and markets are not delivering much in terms of total return, and cash flow from dividends and interest is sparse, from where does this confidence come?

Ha
A very good question. For me, it comes from trusting that the future will represent the long-term past. We trust past experiences every day in life (that we'll arrive at our destination for example), without even a 100th of the analysis that we've put into the past stock market returns.

Using a 4% of portfolio value (instead of inflation adjustments) helps add to the confidence for me, as does the willingness to be flexible and earn a little or spend less if the need arises.

Two years into this and I've done both - spend less and earn some money - and as a result feel more confident in our ability to pull this ER thing off at our age.
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Old 06-22-2010, 07:51 PM   #8
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I know what you mean about financing. Although I had the cash, I decided to go with 0% financing on my latest car purchase (only two more months to go.) That has worked out to my benefit, making my total monthly spending, not counting the car payment, decline somewhat. So I have actually spent LESS from my "car account" than I would have by forking over the entire amount at the start. Probably just a mental trick, but I ended up better off AND I kept my savings in my account for a longer period.
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Old 06-22-2010, 07:52 PM   #9
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... I got a paycheck every other week for my entire w*rking life ...
I have not had regular income since around 1999, except for some brief periods. Working for small startups and independent part-time work is tough, you know. Not for the faint of heart...

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... stop worrying so much about what might be your favorite flavor of cat food.
How can one rule dog food out of consideration?


PS. Just kidding. I didn't mean to scare anyone...
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Old 06-22-2010, 09:28 PM   #10
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Many of us who made the leap to FIRE have reported our first year was a period of squeezing every nickel before spending it. Once you have a year or so under your belt and see that yes, you really can live comfortably off your nest egg, you will likely loosen up a bit and stop worrying so much about what might be your favorite flavor of cat food.
My wage income in the last 17 months of working (June 2007-October 2008) was about the same as my investment income after I retired. SO it was not a big transition as far as cash flow went. I had already created a spreadsheet to look at my expenses for 6 months forward to make sure I had enough cash flow to cover my irregular but large expenses (i.e. semi-annual auto insurance, April and year-end estimated income taxes) from month to month. I simply altered the spreadsheet to handle monthly instead of biweekly inflows and to include the large, quarterly HI premium payments.

There is a degree of uncertainty in my Big Bond Fund's (BBF's) monthly dividends, as they vary a little, unlike the certainty of a paycheck amount. But otherwise, I have not had to change my spending habits after I retired in 2008.
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Old 06-22-2010, 09:42 PM   #11
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I have not been able to really understand this. If one is doing total return/asset allocation investing, and markets are not delivering much in terms of total return, and cash flow from dividends and interest is sparse, from where does this confidence come?
Social Security, selling blood plasma, and the power of positive thinking...
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Old 06-22-2010, 09:53 PM   #12
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Social Security, selling blood plasma, and the power of positive thinking...
For a married couple, there's one kidney each.

I wonder how much the price is discounted for a kidney with stones, or propensity to produce them
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Old 06-22-2010, 09:54 PM   #13
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Social Security, selling blood plasma, and the power of positive thinking drinking...
Fixed.

Ha, it's like this -



I humbly apologize for posting a George Michael video...
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Old 06-22-2010, 10:29 PM   #14
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I do the automatic withdrawal too each month to simulate a paycheck. Yes, especially the first year, it was difficult knowing that money was flowing out instead of flowing in. Also, it was important for me to set up a budget and stick with that. Additionally, during the budgeting process, I went through each category and evaluated, "do I really need to spend this?" For example, for me, paying $60/month for cable wasn't worth it, so I dropped that. The same with having a monthly mobile phone plan so as soon as my contract expired, I went prepaid. I decided to keep my car last longer so decided to fix it rather than getting a new one.

It still is a challenge sometimes, but overall I'm quite happy with decided to make the move.
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Old 06-22-2010, 11:29 PM   #15
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I've been reading books like You Can Be a Successful Income Investor and The Cash-Rich Retirement, and I find the idea of living off the income produced by the portfolio somehow reassuring. I don't know how rational that is, but somehow it feels as if I wouldn't be spending my nest egg itself. I guess sort of like the difference between drinking milk and eating a steak. No matter how much milk you drink, you'll still have the cow afterwards. Not so much if you eat a steak.
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Old 06-23-2010, 09:30 AM   #16
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During the last years that I was working, I felt that the reason for working was to afford to do things in retirement that I hadn't done while working. (i.e. I worked beyond the point of basic FI.) So spending after retirement was just harvesting the rewards of hard work.

It also helped to have a basic monthly income that I felt confident we could sustain for the long term.
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Old 06-23-2010, 09:52 AM   #17
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And how do I make myself feel better about going into a withdrawal mode instead of a deposit mode??!!
It isn't easy after years of seeing your investments grow to consciously reduce them. One has to come to a place where you realize the purpose of all that saving and investing was so that you could spend it all before the end! So the balance is going to go down. How you get to a comfort zone about a declining balance is the path you have to travel.

Consider:

Drawing up a simple estimate of annual balances over the next 30 years. Where should you end each year? So I have a spreadsheet that lists out the year, the beginning balance, 3% growth on that balance, an amount I need to live on (increased by inflation annually). If I have more than this at the end of the year, I'm doing very well.

Determine how many years of cash you have available to fund expenses in your current asset allocation. How comfortable does that make you feel? If the market has a down year, can you feel comfortable that your cash and fixed income investments will cover your expenses for 5 years? 10 years?

Decide how you are going to pull money from your savings to cover your expenses. Some have $ transferred to their checking account monthly. I pull a year's expenses in January and put it into CD's (3 or 6 month) that mature when I need the $. This method requires you know your cash flow needs for the year. Certainly a high yield savings account would generate more income, but the CD's put a "governor" on the cash available. It's simply a mindset I use, it helps me sleep at night.

What do you need to feel comfortable about spending money and seeing the balances reduce over time?

This is what has worked for me.

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Old 06-23-2010, 10:11 AM   #18
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During the last years that I was working, I felt that the reason for working was to afford to do things in retirement that I hadn't done while working. (i.e. I worked beyond the point of basic FI.) So spending after retirement was just harvesting the rewards of hard work.
This came to me as an epiphany yesterday - - - that really we DESERVE to be living the good life in retirement, because this is the gratification that we delayed all those years, and there is no reason to feel odd or apologetic about spending what we earned. I know, I know - - that seems obvious but I am not used to the idea of spending what I had earned AND doing whatever I want to do each day. Life is so good in retirement.

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It also helped to have a basic monthly income that I felt confident we could sustain for the long term.
A basic fixed income such as SS that (with a paid off house) will cover bare bones needs sure helps those who are familiar with and unafraid of a bare bones budget to retain confidence. The rest is gravy. Just don't put too much gravy on those biscuits...
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