May 2024 Portfolio Update
Wednesday 5th June 2024
Enough is Enough
This whole FIRE thing can be really strange sometimes. In many ways, there is a backwards element to FIRE. Our expenses are likely larger now than they will be when we are much older, yet if one does plan to retire young, likely you are going to oversave by default. It is just part of what happens when trying to retire young - FIRE would be a lot easier if our expenses were the other way around - low now and higher later.
So how do we plan for all of this then? The reality is, that there is no perfect time to jump - however oversaving is likely worse than trying to plan for every future expense. The outcome however, is that chances are we are going to find ourselves relying on a mix of luck (market returns) and flexibility as we adopt early retirement.
I have been asking myself a lot recently what is my enough. After reflecting, I have realised the following things about our early retirement situation:
1. I will work casually in retirement. Maybe 5-10 hours per week for 40 weeks a year - at least in my 40’s. This is a good way to combat the oversaving aspect - rather than continuing to grind, I get years back that I would otherwise end up oversaving for anyway.
2. Having leveraged properties is a great way to maximise returns on property. I am particularly bullish on the properties we own and we have seen a significant increase in Limerick property prices recently - which is a trend that will likely continue.
3. Living off rental income allows the portfolio to continue to grow in the meantime. By living off rental income alone for say the first 10 years, it will ensure our portfolio will grow in the meantime ensuring that at some point I will no longer need to work casually if I don’t want to.
4. Trying to retire early with children is nearly impossible. There are so many unexpected expenses that can’t be easily budgeted for. The reality is, true early retirement is reserved for those without children or whose children are no longer dependent financially on their parents.
5. How does one budget for bucket list items? That month-long trip to New Zealand, or that once in a lifetime cruise? How about property repairs and upgrades - the solar panels or the new roof? Working casually allows for these sorts of expenses to be accounted for. The portfolio takes care of our annual living expenses while any additional work pays for the fun stuff!
6. Most people work too long and save too much. If you look at most FI bloggers this is clear to see. Carl from 1500 days is the best example of this. He looked to build a portfolio of $1.1 million USD - his portfolio recently hit $4.5 million USD!
With all of this in mind, how do we decide when we no longer need to contribute to the portfolio? Furthermore, it is one thing to stop contributing, but another thing to then decide when to start drawing down from the portfolio. Both do not need to be done at the same time, and can lead to different outcomes.
There is also the other aspect that I mentioned last month - the difference between hitting FI and adopting early retirement. Does hitting FI on paper mean that you are going to look to suddenly retire there and then. For example, it is likely our portfolio will hit €750k in the next year or two - that would give us a solid €30,000 per year to cover our expenses - which yes, we could live off that and technically we would be FI. But do we jump? How do we find that balance?
And I guess balance is likely the key to all of this. There is a big difference between all this theory and reality. Most of us start our FIRE journey because we want to build a better life for ourselves. It is hard to argue against the numbers - increase your income, keep your expenses in check, invest the difference and continue this until your portfolio gets big enough. The issue of course, is for the majority of us, in order for us to achieve this new life, we need to do the thing that likely makes us unhappy in the first place - work harder and longer!
I recently took on another project in order to give myself one final push towards my FI goal. This went largely against the message that Tina from Money Flamingo discusses - which is to try to avoid the grind to FIRE. The reality is, I don’t need to be putting myself through this final grind, but it can be hard to say no - especially when one is good at their craft and the money being offered does make a significant difference to the time to FIRE.
However, I have accepted that I do need to find a balance, and as much as I enjoy seeing the portfolio continue to grow, it shouldn’t come at the expense of my happiness in the short term. I am now so close to hitting FIRE, that it is going to happen at some point in the next year or two, regardless of working an extra project or not!
I recently booked three weeks off work in July. I did the same in December 2023, and it was wonderful to have some extended time off. This time will definitely help me reflect more and experience a “mini retirement” - or at least time off work to reflect.
I have also accepted that hitting €750k is our finish line for contributions. There is no need for me to continue to push after this point. We will definitely have one mortgage paid off at this point, and likely two (or at least very close to two), so we can move to semi-retirement at this point and let the next phase of our FI journey take shape.
The only real question left then, is how much should I grind between now and then? Do I work as hard as possible and get there in a few months? Or do I cut back and cruise my way there? My current work-lifestyle is likely tipped a little too far in the “working too hard” direction - so I will likely look to adjust as needed over the next 3 - 9 months as we progress to hitting our final goal.
When will I be Financially Independent?
What is the true definition of financial independence? Should financial independence cover all the luxury items one buy’s, or those expensive holidays? How do we define financial independence? It is funny that after running this website and podcast for five years I have never really asked this question.
According to our friends over at Wikipedia, the definition of financial independence is as follows:
“Financial independence is a state where an individual or household has accumulated sufficient financial resources to cover its living expenses without having to depend on active employment or work to earn money in order to maintain its current lifestyle.”
Interesting. I was surprised that this definition didn’t really cover extra expenses, it specifically references “living costs” - which are defined (according to Collins Dictionary) as:
“the money that has to be spent on food, housing, clothes, transport etc.“
I was surprised. By definition, financial independence is about looking to cover your basic cost of living without worrying too much about the extra’s discretionary spending.
This somewhat has validated my entire FIRE plan. Look to cover the basic expenses and don’t be afraid to work casually in “retirement” to pay for any discretionary spending - while letting the portfolio continue to grow in the background.
This would allow me to declare myself financially independent and I guess “semi-retired” - not quite fully retired in a traditional sense, but as close as I can likely get in my early 40’s with three kids - we will take it!
The only question to answer then, can our family’s living expenses be covered within €30k per year? Let’s do a quick budget based on a monthly budget:
| 2024 Monthly “Living Costs” Budget | |
|---|---|
| Income | |
| Portfolio Income | €2,500 |
| Children’s Allowance (3 children) | €420 |
| Total Income | €2,920 |
| Expenses | |
| Income Tax* | €420 |
| Groceries | €900 |
| Transport | €300 |
| Eletricity & Heating | €125 |
| Clothing | €100 |
| Clothing | €100 |
| Internet + Phone | €80 |
| Healthcare | €300 |
| Property Security | €30 |
| Insurance | €60 |
| Mortgage + Other Household Costs | €700 |
| Children's Education | €100 |
| Misc | €50 |
| Total Expenses | €2,920 |
* I based the tax calculation on the tax calculator here.
**Our electricity costs are very low since we invested in solar panels. With the help of the government credit’s, we still haven’t paid an electricity bill since September 2022.
So there you have it! Provided our costs stay in check between now and when our portfolio hits €750k, we should be able to declare ourselves financially independent at that point and look to semi-retirement.
May 2024 Portfolio Update
It was another good month for our portfolio. I have had a backlog of work to get through, so I ended up working a few extra hours during May, which I put into the portfolio. As a result, our monthly contribution was up on normal at €9,000 this month.
We got a new boiler installed at our forth investment property, so that set us back a cool €3,800. I have capialised that expense for now, rather than declaring it as an expense, as it will result in an increase in validation of the property.
Next month is going to be a big month for the portfolio. Our four investment properties are due a valuation update, so I expect a pretty big jump in the portfolio next month as a result. The property market in Limerick has been hot over the last 12 months. I typically look to be conservative on our valuations and take into account legal fees and auctioneer fees if we were to sell the properties. However, it is likely each property has increased in value by at least €10,000, so this will need to be accounted for. I am expecting that the portfolio could hit €600k next month - so let’s wait and see what happens!
May was a good month overall, with our stocks bouncing back and another solid month for our rental properties. We made another additional repayment on the first mortgage we are trying to clear, the balance on that mortgage is now around €67,000.
Let's take a look at the numbers:
| Portfolio Summary (as at 31st May 2024) | |
|---|---|
| Opening Balance | €546,239.13 |
| New Contributions | €9,000.00 |
| Portfolio Growth | €7,268.88 |
| Closing Balance | €562,508.01 |
Monthly Portfolio Growth Report
| Monthly Portfolio Growth Report | |
|---|---|
| Capital Gain + Dividend Income from Equities | €3,790.26 |
| Real Estate Income | €3,464.00 |
| Interest on Cash Savings | €14.62 |
| Total Growth | €7,268.88 |
| % Return | 1.31% |
Portfolio Breakdown
The table below shows the breakdown of my portfolio into the various asset classes:
| Portfolio Asset Breakdown (as at 31st May 2024) | ||
|---|---|---|
| Equities (Stocks) | €169,770.13 | 30.18% |
| Real Estate | €391,218.25 | 69.55% |
| Cash | €1,519.63 | 0.27% |
| Total | €562,508.01 | 100.00% |
2024 Year to Date Returns
Here is a summary of my year to date returns for 2024.
| 2024 Year to Date Growth Report | |
|---|---|
| Opening Balance | €498,900.39 |
| New Contributions | €35,000.00 |
| Equities Capital Gains + Dividends | €16,494.25 |
| Real Estate Capital Gains + Rental Income | €12,077.30 |
| Interest on Cash Savings | €36.07 |
| Closing Balance | €562,508.01 |
| Portfolio Return | €28,607.62 |
| % Return | 5.36% |
Lifetime Portfolio Returns
Here are my returns since I started in 2018.
| 2018-2024 Growth Report | |
|---|---|
| Opening Balance | €0 |
| Contributions (Money Added) | €376,867.78 |
| Equity Release* | €41,220.21 |
| Real Estate Capital Gains + Rental Income | €103,217.43 |
| Equities Capital Gains + Dividends | €45,031.25 |
| Interest on Cash Savings | €36.07 |
| Other** | -€3,864.73 |
| Closing Balance | €562,508.01 |
| Lifetime Portfolio Return | €144,420.02 |
* In 2020, some of the new contributions came in the form of an equity release, as we turned our primary residence into a buy to let and purchased a new home to live.
** In 2018 & 2019 I made several bad investments in peer to peer lending, forex trading and unregulated investments, which resulted in losses overall.