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Author: ChocoKitty Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 5068  
Subject: A visual tool Date: 9/3/2003 5:02 PM
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...shamelessly stolen from the credit card boards.

I've grumbled before about how saving for FIRE is like watching paint dry. So I'm thinking of making an FIRE paper chain. Each link in the chain corresponds to a dollar increment (e.g., $2K), with every tenth link a different color to mark a milestone. Each time I reach a given increment in my FIRE fund, I get to break a link. Call it "breaking the chains of full-time employment." Each time I reach a milestone, I get to break the link and go to a fancy restaurant for dinner as a little reward.

Because the chain will likely be verrrrry long, I've also opted to change color schemes completely for each large milestone (like every $100K). And the last link will be a gold-colored link marked "FIRE". I'm into personal symbols, and a gold link reminds me of the "golden handcuffs" that I was warned about early in my career.

Of course, if the market goes down, I'll probably have to occasionally add some links back to the chain. But by continuously putting money into the FIRE fund, this shouldn't happen too often.

Now I'm afraid this chain will be so long that it might discourage me! But at least I get something to play with.

CK
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Author: JBtheJunkist Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 645 of 5068
Subject: Re: A visual tool Date: 9/3/2003 6:17 PM
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Now I'm afraid this chain will be so long that it might discourage me! But at least I get something to play with.

CK


Five years ago, my chain would have wrapped around the block.

Two years ago, it would have wrapped around my house.

Next year, it will wrap around my waist.

Three years after that, I'll wrap up my working career.

:)

JB


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Author: FoolNBlue Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 648 of 5068
Subject: Re: A visual tool Date: 9/3/2003 8:49 PM
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I've grumbled before about how saving for FIRE is like watching paint dry. So I'm thinking of making an FIRE paper chain.

I have a simple spreadsheet called Financial Timeline. Once a month when I "lock" my personal finance spreadsheets, I enter my EOM net worth and my monthly expenses. I then have Excel generate several simple line graphs. The main one is simply my net worth. The others track my expenses (along with trend line), withdrawl rate, and "month's living expenses."

Because the chain will likely be verrrrry long, I've also opted to change color schemes completely for each large milestone (like every $100K).

My milestones are when Excel rescales my Y-Axis. What a lovely event!

The Financial Timeline Spreadsheet is more for fun than analysis. It serves to motivate and remind me how far I've come. I have net worth data going back to 1996 and expense data back to 1998.

FoolNBlue (Paperchain.xls)

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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 653 of 5068
Subject: Re: A visual tool Date: 9/3/2003 11:51 PM
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Now I'm afraid this chain will be so long that it might discourage me! But at least I get something to play with.

That is a good idea. Now I will have something to fill up my basement!

My kids do something similar in the month of December to count down until Christmas. Why not use it for my financial goals as well! Although I might be inclined to use a little larger increment than $2k so the paper chain does not take over our house.

dt

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Author: dsemmler Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 654 of 5068
Subject: Re: A visual tool Date: 9/3/2003 11:57 PM
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(Paperchain.xls)

Well, aren't you gonna offer to share it with the rest of us???

dt

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Author: Mark0Young Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 656 of 5068
Subject: Re: A visual tool Date: 9/4/2003 1:24 AM
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Since 1999, my financial advisor has asked me to make out a Net Worth statement every year at about the same time of the year. I have been doing so, and plotting the results (vertical is net worth, horizontal is the year), and it has been mostly encouraging watching the graph go up, though for three years most of the gains had been because of the guaranteed part of my pension (which the legislature is now trying to take away ... grrr....) and the rest the appreciation of my residence and reduction of the mortgage balance.

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Author: ChocoKitty Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 661 of 5068
Subject: Re: A visual tool Date: 9/4/2003 9:18 AM
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Although I might be inclined to use a little larger increment than $2k so the paper chain does not take over our house.

After calculating the number of links I would have with a $2K increment (yikes!), I've done the same. I need *somewhere* to sit in my home office....

CK


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Author: zrpurser Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 663 of 5068
Subject: Re: A visual tool Date: 9/4/2003 10:13 AM
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After calculating the number of links I would have with a $2K increment (yikes!), I've done the same. I need *somewhere* to sit in my home office....

Since compounding interest will make your money grow faster the more you have, wouldn't a logarithmic scale be a better choice for the links? Hmm... I'm going to have to get more colors.

Zach


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Author: ChocoKitty Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 664 of 5068
Subject: Re: A visual tool Date: 9/4/2003 10:16 AM
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Since compounding interest will make your money grow faster the more you have, wouldn't a logarithmic scale be a better choice for the links?

Nah, I just get to rip up the links sooner. Maybe even multiple links at a time! ;)

CK
(easily amused)

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 665 of 5068
Subject: Re: A visual tool Date: 9/4/2003 10:30 AM
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May I suggest using a net worth vs. FIRE number percentage, instead of a fixed number? I say that because if FIRE is more than a few years off, you may find that inflation is moving the target for you, and you'll have to start adding links to the far end of the chain, which isn't fun. A sliding scale probably does not make sense, despite what Zach says, because the rate of increase probably only doubles every 10 years or so.

If I were to make such a thing, I'd have 1% links, I'd currently have 54 links left, and I'd expect to tear up about 8 links over the next year, a bit less than 1 per month.

Certainly the 50% mark is something to celebrate.

- Gus

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Author: ChocoKitty Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 666 of 5068
Subject: Re: A visual tool Date: 9/4/2003 10:33 AM
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I like this idea -- can you clarify how this would work? Sorry, I'm a little slow.

CK

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Author: GusSmed Big gold star, 5000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 668 of 5068
Subject: Re: A visual tool Date: 9/4/2003 11:20 AM
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can you clarify how this would work?

The short answer is update your FIRE and total net worth figures once a month, and compare the two as a percentage. If the net worth percentage has advanced a full percentage point or more compared to your remaining links, tear up the links.

Getting those figures is a matter of record keeping. I always know my net worth, because I have record for everything in Quicken. I include my estimated home equity in this figure by tracking my house's current estimated market value in Quicken, as well as the remaining balance on my mortgage.

Presumably you keep a budget. You absolutely need one if you want a firm FIRE figure, because you need to know how much you want in retirement. I'd include a reasonable monthly recreation budget in this, since you don't want to be just scraping by. I would not include rent or mortgage.

For example, for me this figure is $40,000 / year, which includes $12,000 / year in recreation, and things like property taxes.

Now you need to include taxes. This is moderately complex, since it's a sliding scale, and your income is going to include capital gains and dividends, which aren't taxed like normal income. I currently estimate my tax burden will be about 20%, excluding property tax. My actual tax burden is about 30% right now, but that's all normal income, and my household income is about double what I'll need in retirement.

For me, then, I'm estimating my pre-tax desired income to be $40,000 / (100% - 20%) = $50,000 / year. At 4% withdrawal, that's $1.25M. At 5%, it's $1M. Personally, I'm going with a 5% rate, which is aggressive, because I believe I will be able to adjust my spending and re-balance my bond vs. stock income a bit more intelligently than the RE spreadsheet shows.

To this, I add the cost of a house. I didn't include rent or mortgage in my earlier numbers because I intended to add that cost here. I'm allowing $300K for this figure, because I figure that's the maximum cost to build to suit in a market more reasonable that the Boston suburbs. Build to suit isn't my first choice, but it does put a cap on what I expect to pay. Hence my total target figure is $1.3M at present.

I walked through this stuff because you can combine two steps by multiplying your current annual budget by x20 / 80% = 25 (for 5%) or x25 / 80% = 31.25 (for 4%). If you keep reasonable track of what you're actually spending, you can update your FIRE figure quickly by doing something like this:

FIRE = Last 12 month's spending x 30 + House Cost.

It's worthwhile to update housing prices about once a year, since they do change. One way to do it is to use www.realtor.com or something similar to take a gander at asking prices for houses you'd like in the area you'll retire. If you think you'll retire in your present house - which I don't - you needn't bother, you can just use your mortgage.

- Gus


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Author: wmhughes One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 688 of 5068
Subject: Re: A visual tool Date: 9/8/2003 6:13 PM
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Personally, my visual tool is a large printed "thermometer", kind of like those goal thermometers they use for charities like United Way, UNICEF, etc. I post this visual tool on the wall inside my closet.

The thermometer has a round "bulb" at the bottom (purely for looks) and a very tall neck. I've lined off the thermometer with dollar increments that are gradually increasing. For example, I have a $1 million thermometer that has 40 increments ($$ goals). The first few increments are only $5K apart and the last few increments (leading to $1M) are $50K apart. When I initially made this thermometer, the goal was to color-in two increments/year, thus reaching $1M in 20 years. As I color-in each goal, I put the month & year next to the line. I always use a green (color of money) crayon to do my coloring and a red pen to label the date.

I haven't colored since August 2000 due to the lousy stock market.

You could set the top line of your thermometer to be the total amount needed to FIRE and develop suitable, gradually increasing, increments to color in as you progress toward your goal.

I see my visual tool ever time I go in my clothes closet, which is several times/day.

If you're using a paper chain, what do you do during a significant down market? Do you put the links back onto the chain? Do you have to dig them out of the garbage, or do you just make new ones? (don't answer that)

I had a major setback about 10 years ago (divorce), so I crossed out the red dates, retreated, and entered new dates.

Fool on!
WMC

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Author: peteyperson Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 882 of 5068
Subject: Re: A visual tool Date: 9/23/2003 9:35 PM
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May I make a suggestion, Choco.

A fine lady on the Fool boards once wrote (I forget her name but it was such a deceptively clever & simple idea that it stuck in my mind), that she broke each item in her FIRE budget into the multiple she was using and saving towards. Whether that multiple is 25x, 40x or 50x, she had that multiple down the side of each budget item and as she saved for FIRE she would see how she was doing on each budget item.

So for instance, she would start saving and gradually build up enough to cover her first budget line item, say Food. Then that would be funded 100%, so she could afford to eat, never have to worry about food ever again. Then she was saving towards the next budget line item, maybe transportation, etc..

I thought it was a lovely method because it broke the long-term goal down into manageable, achieveable chunks and you could see the progress flowing down the page on the FIRE budget. If someone were a bit fancy with spreadsheet formulas, they could have a field for the total invested, calculate the w/d amount based on their w/d percentage planned and then distribute that down the page. Take a bit of work but it could be set to automatically recalculate from whatever number you put in and it would fill out all the spending items you could now afford. A more simple version would be to manually add the amounts in by hand which works well too for those who only know the basics of spreadsheet stuff.

i.e

Portfolio $ 125,000
W/d rate 4%

Annual withdrawal $ 5,000


Item Budget FIRE x25 Funded?

Food $3,000 $75,000 100%

etc..


Petey



...shamelessly stolen from the credit card boards.

I've grumbled before about how saving for FIRE is like watching paint dry. So I'm thinking of making an FIRE paper chain. Each link in the chain corresponds to a dollar increment (e.g., $2K), with every tenth link a different color to mark a milestone. Each time I reach a given increment in my FIRE fund, I get to break a link. Call it "breaking the chains of full-time employment." Each time I reach a milestone, I get to break the link and go to a fancy restaurant for dinner as a little reward.

Because the chain will likely be verrrrry long, I've also opted to change color schemes completely for each large milestone (like every $100K). And the last link will be a gold-colored link marked "FIRE". I'm into personal symbols, and a gold link reminds me of the "golden handcuffs" that I was warned about early in my career.

Of course, if the market goes down, I'll probably have to occasionally add some links back to the chain. But by continuously putting money into the FIRE fund, this shouldn't happen too often.

Now I'm afraid this chain will be so long that it might discourage me! But at least I get something to play with.

CK


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Author: ChocoKitty Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 884 of 5068
Subject: Re: A visual tool Date: 9/23/2003 9:45 PM
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Thanks for that reminder! I remember thinking that it was a remarkably clever tool. That's something that I probably should consider, and it will also help spur me on to writing out a real budget.

CK

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Author: peteyperson Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 886 of 5068
Subject: Re: A visual tool Date: 9/23/2003 10:05 PM
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Cool! I just remember it because it was way better than thinking, "Okay I have 50k now." It turns it into something tangible. It spurs you on to afford the next thing on your budget.

Also something to think about is to include any likely taxes on the withdrawal in your budget. So it you are withdrawing $30k a year, are there any taxes on that and to include the taxes in your planned FIRE budget. People often ignore that. I actually did until I realised. That also pushes you to examine the budget more closely because if it goes down by $1, then the amount you need is less by whatever multiple you are using and plus the taxes you save from the lower withdrawal.

Finally, it may also be useful to have either two FIRE budgets or seperate out essential expenditure like Food vs non-essentials like restaurants. This drops the total needed down and you get there faster as it seems more achieveable. Once there, staying in paid employment to afford that vacation or weekly restaurant trip seems okay because you're staying employed for a specific reason but could choose to quit with a more minimal budget. Smaller goals are more likely to be achieved I think and so that two step approach might work better for some people. I know that my budget is 50% extra because of the recreation part of it and I know what the essentials cost too. The smaller figure is comforting.

Petey

Thanks for that reminder! I remember thinking that it was a remarkably clever tool. That's something that I probably should consider, and it will also help spur me on to writing out a real budget.

CK


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