Financial Independence May 2017 Update
Welcome to our financial independence update for May 2017. We’re a bit late in getting this out. We’ve been busy busy busy. Unfortunately, not for all good reasons. This update supplements our main blog page (aka “The Plan”) that covers our plan for early retirement and financial independence.
Bonds and Equities Advance – Slowly
The slowing in the overall equity and bond market continued in April. Even so, positive returns were had in most everything except the deepest value corners and of course energy. Developed international equities are still outpacing US equities. We’re carrying a relatively small fraction of international stock funds, so we didn’t benefit greatly from that. Overall, our portfolio picked up a little over one percent for the month. We’ll gladly take it and the progress towards financial independence!
April Saving and Expenses – Home Maintenance Dominates the Month
We were expecting a relatively quiet April and for the most part it was. That is, until we got almost 9 inches of rain in two days late in the month. We’ve lived in our house for nearly 20 years. No matter what Mother Nature could throw at it, it has remained dry. But, water always tries to find a way and it found a way into our finished basement. It was not a disaster, but the repair and restoration took about $750 dollars in tools and materials and a day off work for Jeff. The problem now appears to be fixed, thanks to low-viscosity, low-pressure injection polyurethane. (That’s for you home project nerds out there!) Humpty Dumpty isn’t quite put back together again, but for now the major expense is done.
As you can imagine, we blew our April expense budget due to that repair, but we’ve got a monthly budget on home maintenance for every month the remainder of the year. If things go well, low maintenance months will eventually make up for this month. Since we have an adequate cash reserve, paying for the repair was no problem. The cash reserve was used for its intended purpose and there was no real negative impact to our financial independence plan. For those of you wanting to learn something from our experience – learn the lesson of the importance of having a not-small cash reserve. If we were living paycheck to paycheck with no cash reserve, that repair expense could have ended up on a high-rate credit card. I don’t need to tell you why that is a really bad idea.
Our other expenses were mostly on track. We dialed back eating out and entertainment to compensate for March’s high clothing expenses.
Saving was right on the budget. It is mostly “automatic” via deductions from our paychecks, so it takes a deliberate effort to make it come up short.
I have a reminder in June to analyze and adjust our budget for the remainder of the year based on our experience so far. I’ll need to consider the possibility of reducing expenses to be sure we’ve got home maintenance covered for the rest of the year. I do not want a late year expense to ruin our success!
Savings Bonds, T-Bills, T-Notes, TIPS, OH MY!
We mentioned last month that we were changing our investment portfolio allocation to a greater fraction of bonds. Jeff completed the re-allocation/re-balance of the portfolio in April and we’re now at a 60/40 (Equities/Bonds) mix.
In addition, we’ve also started the process of building a bond ladder out of Treasury Inflation-Protected Securities (TIPS) purchased within our tax-deferred brokerage account. This is part of our LMP/RP strategy we discussed here. Currently, we’re limiting this to purchasing these at auction as new issue bonds. Vanguard Brokerage (and many others) will execute Treasury auction purchases at no charge. When we are closer to retirement, we’ll fill in any gaps in the ladder with TIPS purchased on the secondary market.
On the subject of bond ladders, we’re experimenting a bit with buying T-Bills and T-Notes from TreasuryDirect as an investment location for our “cash” reserve. Of course it stops being cash when it is tied up in a bill or note, but we’re using a rolling bond ladder method with bills or notes maturing frequently. If the proceeds from the maturing security are not needed, then another rung on the ladder is purchased further out. (A “rolling” ladder of sorts.) Eventually, we think we’ll have a constantly (weekly or monthly) set of securities maturing and available for use or reinvestment. We’ll let you know how it works out.
Another thing we’re doing this year (and for every year up to retirement) is buying the maximum amount of I-Bonds. ($10k per person plus $5k from a tax refund) These 30-year savings bonds accumulate interest that is not paid out until redemption or maturity. Since the interest rate adjusts for inflation, they will be part of our “real” income floor in future years. We only wish we had started buying them earlier in life.
Vacation and a Job Change
We’re looking forward to our vacation next month. Both of us have been working big hours at our jobs for months on end and we need a break. We budgeted the money for the trip months ago and it will feel good to relax, get some exercise, and see some beautiful scenery.
Jenny recently accepted a different position at her company that has a significant potential for income growth. It is requiring lots of extra work and hours to ensure she’s got a good foundation for success. That means less time for blogging and fun. But, hopefully it will be a good investment in her career. And…it could put more funds in our investment portfolio, thus enriching our retirement and sweetening our future financial independence. Jenny is a great example of what empowered women in the workplace can achieve. Go, Jenny, go!! (Shameless display of husbandly pride!)
Financial Independence Summary
Despite the unexpected home repairs and long work hours, April actually was an okay month for us. Our cash reserve did what it was supposed to do and served as a shock absorber for the unexpected expense.
Our saving towards retirement and financial independence is still on track and we’re steering our investments slowly towards a safety first strategy for lifetime income.
Hop on over to our “The Big Graph” and you’ll see that linear trend line is largely unchanged from last month. If you follow the trend of the most recent months, however, you’ll see that it is likely the trend line will start stretching out to the right as we go. Of course investment returns are anything but linear, so we just look at it as an indicator and not a prediction.
How are your own financial independence and retirement plans going? Planning any changes, or are you satisfied with the way things are going for you?
Posted by Jeff