Family of Four Taking Flight to Financial Independence

The Stock Market Was Down This Week. Did We Panic?!?


Did you notice?  The market has been down quite a bit over the last week (or so) which has caused a lot of rumblings in the media and in the FIRE (financial independence retire early) community.  It was approaching correction status as of the close on 10/11/2018 which is when it goes down by at least 10% from its highest point (note, it is healthy for the markets to have corrections).  


NYC's Financial District

When this occurs you can be guaranteed of two things:

  • The media is going to hype it up!
  • People are going to panic!

We want to calm your fears and share how we handle a week such as this one.  Overall a week like this is pretty meaningless.  But it is also a good time to run through some “what if” scenarios in your head just to make sure you aren’t buying all of the media hype (and that you are buying in the market (as you always should be)).  

What If We Were Retired This Week and Living Off Of Investments?

If we were already retired and living off our investments and this week happened, (hint, it will happen again and eventually be much worse than it is now) we wouldn’t need to change a thing.  To understand why, you have to understand our withdrawal strategy (let’s run through a hypothetical situation).  

Example Scenario: Let’s say we retired in January of 2018.  We have $1,000,000 in investments, and we plan to live off of $40,000 per year (or 4% of our investments).  In January we would have withdrawn $3,333, and every other month of 2018 we would have withdrawn the same amount (unless of course we found we didn’t need this much, or we had some side hustle income coming in (we will)).  

$3,333 * 12 = $40,000

But What If The Market Is Down in 2018?

If the market ends up being down in 2018, we would still continue to pull the same $3,333 every month.  Our withdrawals for 2018 are based on how the market performed in 2017 (we can’t predict the future!).  Since the market was up over 20% in 2017, we know we can confidently pull the 4% from our investments for all of 2018.

That’s why this past week would have no impact on us.  We aren’t worried in the least bit.  In fact, we are excited because we plan to buy more shares of VTSAX on Monday (who doesn't like buying things on a discount!).

Now, if the market is down overall in 2018, then our withdrawals starting in 2019 would be impacted.  Let’s run another hypothetical based on a down market in 2018.  

Hypothetically speaking, if the market was down let’s say 10% overall for 2018, then we most certainly would not withdraw the entire 4% from our investments.  We would take 1% from our cash cushion which would be $833 per month, and 3% from our investments which would be $2,500 per month.  Our lifestyle won’t be impacted since we are still living off of our planned $3,333 per month.  We are just applying some safety margins when needed (in this case lowering our 4% withdrawal rate to a 3% withdrawal for 2019).  

We could also choose to pick up some part-time work / side hustle to lower our withdrawal rate even more, or practice some geographic arbitrage by living in a cheaper part of the world (Puerto Rico anyone?) during down years.

(Hint, you will make money in ER (early retirement).  You may not know how, but it would be almost impossible not to earn another dollar for the rest of your life).  

The Market This Week

Don’t believe the hype that you hear in the media, and definitely don’t panic!  Keep an eye on things from a distance while you enjoy your FI (financial independence) (or work towards FI) and, implement your safety margins as needed.  

So what do you think?  Were you worried this week?  Does this make you feel any better?

-Erik


Family of Four: One Year Budget in Spain Less Than $40,000


We are going to take a look at what we are forecasting our spending to look like for our first year of FIRE (financial independence retire early) / early retirement.

This example is based on the idea of moving to Granada, Spain for 10 months out of the year and then coming back stateside for 2 months to visit family and friends.

One of the things that I did in order to figure out how much money will easily sustain us in retirement is to look at our current spending (which really hasn’t changed much over the last 5 years or so).

We currently have about $3,200 per month in expenses so we can conclude that we will need $38,400 to sustain our current lifestyle in early retirement.  We can then take the $38,400 and multiply it by 25 in order to get the amount of money we need to be able to live off of the 4% rule.  

$38,400 * 25 = $960,000 (We plan to have more than this.)




But you’ve never been to Spain, how can you possibly have any idea how much it will cost to live there?




Research!  Luckily for us there are others that have done what we are planning to do.

For example, a family of four from Wisconsin (Bucking the Trend) was able to live in Granada for two years on a similar budget to ours. 

We have also been able to get a very good understanding of how much a home will cost to rent based on Your Year In Spain.  And Your Year In Spain can help us rent any of the properties that they have listed.  

There will be 6 main expenses for living in Spain:

  • Rent / Utilities
  • Groceries
  • Medical Insurance
  • Travel (Within Europe)
  • Travel To / From US (And Within US)
  • Variable Expenses / Spending Money

Lets go over each of these in more detail. 

Rent / Utilities

We are planning to rent through Your Year In Spain.  We have a goal to keep our rent / utilities expense the same as what we pay in the states ($1,750).  We also have to factor in currency exchange which is currently not in our favor so we want to stay below $1,750.  We are thinking between 1,100 - 1,250 euros (rent and utilities) per month which would be $1,280 - $1,450 USD (as of 9/2018).  

We are estimating that our utilities will be between $200 - $300 per month (based on Bucking the Trend, for example).  This is significantly more than we pay in the states, and this will be the only aspect of our budget that will increase when compared to our US budget.  Keep in mind the homes in the city are literally thousands of years old so some still don’t have gas connections (use electric instead).  But we feel confident that we can stay below $1,750 for rent / utilities.

Groceries

There isn't a great way to estimate how much groceries will cost because the cost is connected to the types of food a person eats, and everyone likes different things.  We have been a plant based family for a long time (approaching 10 years).  Our meals tend to revolve around rice / potatoes / beans / lentils / fruit / veggies.  From everything I read, Granada has lots of markets that sell fresh produce, and I think we will be able to stay close to our current grocery budget of about $300 per month.  300 Euros would mean about $350 USD.  

Medical Insurance

One of the prerequisites for our non lucrative Visa is that we have to have proof of medical insurance (for a year).  Luckily the medical system in Spain is fantastic and cheap! After doing some research, I was able to get a quote from this company Sanitas Expat.

The plan recommended would cost $233 USD per month (200 Euros) and would cover all of this

If you don’t want to read through that (I don’t blame you) here are a few highlights:

  • 100% primary care coverage in Spain 
  • 100% coverage for dental cleanings
  • Worldwide Emergency Healthcare: Up to 12,000 Euro per person.  This covers expenses from doctors, surgeons, hospitals / clinics from medical services received outside of Spain (like when we come back state side for 2 months).

I think we will quickly learn that people don’t worry about health care in other countries like we do in the US because their health insurance is affordable.  We are planning to pay for annual checkups out of pocket.  The insurance will just be for emergencies and to qualify for our Visa.

We also have a little Health Savings Account (HSA) hack that we plan to use for our insurance expense for the first year or two of early retirement.  My employer currently deposits $1,500 to my HSA account each year.  We have been paying for our current medical expenses out of pocket so that we will have around $4,500 sitting in our HSA (deposited free of charge by my employer) that we can then take out during early retirement. 

Travel (Within Europe)

On to the fun stuff!  A big selling point of moving to Spain is so our kids (and we) can be immersed in the Spanish culture and language.  It also opens up the door to some great travel opportunities within Europe.  It's super cheap to travel from city to city or country to country (compared to what we are use to in the US).  We used GoEuro to run some hypothetical trips that we plan to take.  

A 1:45 minute round bus trip from Granada to Malaga is less than $100.  That is not per person, that’s total for a family of four!  Malaga is the birthplace of Picasso and home to many great beaches.

After beach bumming and visiting the Museo Picasso Malaga for a few days we could then either fly ($375 total for a 1 hour flight) or bus ride ($147 total for a 6 hour bus ride) to Madrid round trip.  We could then fly from Madrid to Paris for $316 (these numbers are total for four people).  

In this example, we would go from Granada to Malaga by bus, Malaga to Madrid by plane (or bus), and then Madrid to Paris by plane for between $563 - $791 total for a family of four.  We would use Airbnb for lodging with averages of $50 - $70 per night in most cases.  Unbelievable, right!? 

Travel To / From US (And Within US)

We have budgeted $3,500 to travel to / from the US once per year.  We will fly in and out of NYC because flights to Europe tend to be cheaper from this hub.  We'll also spend time with family / friends in the US before heading to our next adventure.

Spending Money

We currently have $800 allocated to spending, and we don’t plan to change it for Spain.  In fact, my guess is that we will be able to stay under budget on this for most months.  

Now that we have come up with some educated estimates for our six main expenses (we also threw in a cell phone expense below), we can start to put together our budget for Spain to make sure that it falls within our current spending of $38,400 per year. 




We came in well below our target of $38,400.  This example leaves us under budget for the year by $6,300!  We could apply these funds to another trip within Europe (Germany? Italy? Portugal?) and still stay well below our annual budget.  If we kept spending as shown above at the $32,071 level, this would put us at a 3.34% withdrawal rate (assuming the $960,000 net worth that we mentioned at the beginning of the post).  Not too bad for year one of FIRE!

What do you think?  If you could ... would you spend a year or more in a different country?  What do you think of our Spain budget?

-Erik

Taking Flight To Spain: Flamenco Master Class

As we mentioned previously, Spain is on the table of possibilities once we reach FI (financial independence) (but nothing yet is set in stone).

Why (maybe) Spain?  Read more about our thoughts here: What Are You Going To Do?

We're going to start sharing our preparations for FI and included in that are preparations for possibly going to Spain (among other destinations!).  Stayed tuned this weekend for Erik's financial post on Spain (how a family of four can live in Spain for one school year for well under $40k).

Spanish Culture & Language




One of the ways we are preparing to take flight to Spain is to expose the kids (and the family) to Spanish culture and language as much as possible right now.  This also reinforces what both of my children are learning in school since they are in a dual language (English / Spanish) program in their elementary school.  

I also value exposing them to as many cultures / languages as possible (in general!).

This past weekend our youngest had the opportunity to take a Flamenco Master Class with Ivan Vargas (from Granada, Spain).  Funny thing is ... Granada is currently our top pick of where we may want to stay for a school year (or more).  (Just a quick Google search of Ivan turns up much about his Flamenco experience including some really great videos!).


Our youngest has been in dance since she was two years old (ballet and tap), but she has never taken Flamenco before.  When I told her about it she was very excited - "flamingo!  Yes!  I love flamingos!"  (She is 5 years old).  As much as I tried to explain the difference in what I was trying to say, I'm still not sure she understood.  Hah!  Kids.



What is Flamenco?  From Flamenco Houston: Flamenco is a Spanish art form made of three parts: guitar playing (toque), song (cante) and dance (baile). Flamenco originated in the southern regions of Spain, but its thought to be influenced by many world cultures, including Latin American, Cuban, and Jewish traditions.

How did I find out about this opportunity?  Facebook of all places!  Social Media is good for something (sometimes).

Flamenco Master Class

Ivan Vargas, a professional Flamenco dancer, came from Granada, Spain to perform and teach at MECA (Multicultural Education and Counseling Through the Arts) with Mercy Renteria of Underbel Flamenco.



This was from MECA's website: Ivan Vargas is one of the most internationally acclaimed Flamenco dancers. This will be his first performance and Master Classes in Texas, along with Houston based flamenco dancer Mercy Renteria.  He is one of the most internationally acclaimed Flamenco dancers.
 
Ivan Vargas was born in Granada, Spain in the Sacromonte district, specifically in the cave "La RocĂ­o" where he joined the world of dance at the hands of his family, Los Maya, a dynasty of renowned dancers such as Manolete, Mario Maya, Juan Andres Maya.  Representing centuries of history, flamenco blends Andalusian, Iberian, Arab, and Romani culture into one spectacular show with live vocals, live music, and highly technical dancing.


We had a blast at her Master Class (very near our old neighborhood when we lived in Houston).  She was very lucky to be one of only five students, and Ivan Vargas was really great with the kids.  Sadie seemed to be the youngest and possibly one of the only ones that has not had previous experience with Flamenco.  I loved that Ivan communicated in Spanish 99% of the time, and Sadie hung in there (she's had Spanish exposure at school since late August so that has probably helped!).  What a unique opportunity for her to be able to learn from and dance with an internationally acclaimed Flamenco dancer.

The cost for one of the Master Classes for children was $40.00, and we used our variable spending on this expense.  A friend of ours happened to have a dress from Spain that we borrowed (free!) so shout out and thank you to that friend.  Often times someone in your circle may have something you can borrow for a one time (or few times) use (another perk of Social Media - crowdsourcing friends).

MECA also offers Flamenco classes for children through Mercy of Underbel Flamenco so that is something I may consider in the future.  I personally enjoy learning about cultures through art history / the arts, and what better way for Sadie to learn more about Spain than through Flamenco?

What do you think ... how do you like to learn about other cultures?  What else should we add to our list to prepare for Spain?

-Tara