Thought Experiment in FI

Happy Tuesday! Things continue to be pretty unprecedented these days. Our county is on stay at home orders starting today at 5 pm (along with most of the country).  The last time I went anywhere (grocery store) was on 3/13, and we’ve been working on updates to our Quarantine Bucket List and going though a thought experiment in Financial Independence (FI).

Crisis Averted

Actually, I take that back, I had to go to an urgent eye doctor appointment on Saturday, 3/21. In 2013, my left retina was torn and repaired. However this weekend, I noticed a couple of flashes of light on Friday, and called my ophthalmologists to be safe. One recommended I come in for a quick check. The office was closed, except for me and the eye doctor so I figured our chances of transmission were low. Plus, if the flashes were a sign of any further retina tear, I wanted to get it taken care of before our healthcare system became completely over run. Plus, retina tears are a medical emergency that need to be addressed on an urgent basis. Back in 2013 I was diagnosed and had emergency surgery 24 hours later. 

Fortunately, after about 45 minutes and numerous numbing and dilating eye drops, I was in and out of the eye doctor’s office and safely back into our car with my eyes closed heading back home (Mr BA drove!) No detached retina detected! Thank goodness!  And, no more flashes of lights. 

Quarantine Bucket List Progress

Below is a brief Quarantine Bucket List update from this past week. Mr BA and I are both working from home, so we a quite busy during the day but have our evenings and weekends to work with.

1. Done 3/14 – Plant seed starts for the veggie garden. 
2. Done 3/22 – Taxes. Both state and federal taxes accepted. First time filling out a Schedule C. Yesh, not another form! I also transferred all my bookkeeping to QuickBooks and now really understand why people like using a bookkeeping piece of software. It REALLY helped with my little side hustle and keeping me compliant with all that I need to be tracking.  Now just waiting for our refunds. I tried to get us as close to zero as possible, but we still overshot. Oh well, there’s always 2020. 
3. In Progress – Call family more.   Calling my parents more frequently and texting/calling my brothers to check in. 
4. In Progress – Refinance Mortgage – Fingers crossed we may be able to electronically sign our documents in the next 46 days.   We’ll keep watching this. If not we can have someone come to the house and we can sit outside 6 feet apart and sign paperwork.  
5. New 3/22 – Face Masks – Originally when I wrote about this item I was thinking of those fun paper masks that make your skin feel nice. However I’ve been reading about the enormous Personal Protective Equipment (PPE) shortage, and specifically the N95 face mask. I have numerous good friends who are doctors and nurses and can’t help but wonder if I can put our talents and extra supplies to good use.  We’ll see what I can find out.   

Thoughts on Plan Adjustments 

To date, I really like having cash on hand as we go further into this bear market. I like knowing I have basically 2 years worth of current expenses available to me at any time.   Maybe that sounds excessive but if I had retired right now I would have had some sense of security knowing that I’d be able to survive and not have to draw down on my portfolio when the market is down.  On Sunday, I heard Suzie Orman on the Her Money podcast. She was advocating 3 years of expenses in cash. Her reasoning was that bear markets tend to go down and recover back to even on average in about 3 years.  The best references for the numbers I was able to find are here and here.  Both interesting reads!

Cash On Hand

Suzie’s sentiments ring true to me given how I felt about having my 2 year cash cushion. Granted we have this money earmarked for an emergency fund, some home renovations, and perhaps a rental property in the future. But the cash cushion is allowing us flexibility and the ability to take some chances, such as refinancing to a 15 year mortgage. In reality, I’m not sure how risky that really is given the increase is only $150/month more than the amount we were already contributing to our mortgage to pay it off a little faster.  But you know what I mean, we are now locking in that higher amount on going. 

Plus, this pandemic is a wake up call that no job is really ever safe. And, even jobs we traditionally thought were “safe”, like say dentists, can be impacted by pandemics.  Or even my friends in the healthcare industry. Some are crazy busy like ER doctors and others are relegated to the side-lines because they can’t test for COVID-19 and need to implement social distancing from patients. Or depending on their specialty, for example orthopedics, with more elective surgeries may need to be furloughed. Who would have thought? This scenario isn’t something we’ve had to think about much in our lifetime. But now our lives will be forever changed and this pandemic is not something we can unsee. 

What if we were FI Today?

I also listened to Michael Kitces Monday on the Choose FI podcast and got a ray of hope as he spoke about how early retirees need flexible spending rules.  I love the thought of how to set up retirement bowling lane “bumpers” for your spending to keep you on track long term.

So, in the spirit of both of these podcasts, I did a quick thought experiment in FI of what we would do if we were retired at this very moment (which we are by no means), when our investments have dropped 20+ % and will continue to fluctuate for who knows how long. 

Math it Up

First, we’d pull up our spending tracking spreadsheet and see where we could potentially reel in our spending. Our tracking spreadsheet is broken out by discretionary and non-discretionary expenses. So any of the non-discretionary spending would be fair game for pausing.  Of course we could debate how much fun life would be without the discretionary expenses. And it’s true, it wouldn’t be as fun. But, it would allow us to be able to cut our budget by up to 18%! That’s actually more than I thought. Temporary flexible spending for the win.

Stop selling Stocks & Live off of Cash or Bonds

Second, we’d start re-investing our dividends again and stop selling stocks. Then for the time being, we’d either live off of our cash cushion or sell bonds. 

Sell Stuff

Third, we could consider selling our second car if we hadn’t already and assuming it was safe to do so. For example, I’m not so sure now would be the best time to do this, but it’s a possibility we could consider.  That would have the double benefit of bringing in some cash we could live off of instantly, but also would cut down on insurance, gas, and maintenance. Nice!

Side Hustles 

Fourth, we’d look into ramping up side hustles.  I expect we’ll have some sort of side hustles in retirement, we could ramp up advertising, new ideas and consulting gigs.

Last Resorts 🌴

Fifth, I know both of these items would be last resorts for Mr BA, but we could look into short or long term geoarbitrage.

Short term, assuming we didn’t have a pandemic,  we could look at traveling to a lower cost of living location. We could ,temporarily rent out our home in the process.  I haven’t done the math on this but we could cut utilities, food, and potentially mortgage costs. 

Or longer term, we could look at selling our current home and buying something smaller in a less expensive area.  Again this would be a last resort and not something we’d want to do during a pandemic, but still an option.   

Also an option of last resort could be to rent out one of our two guest bedrooms. Again not an option during a pandemic, but perhaps during other types of bear markets. 

I think these are biggies for us, however if I missed any let me know in the comments below. Like last week it’s really important that we all keep social distancing as much as possible. Plus please consider donating masks and other PPE and using your creative energies to make it through this crisis.  Let me know how you are staying sane, what thought experiments in FI you are doing, and how your Quarantine Bucket List updates are going.

Stay Safe and Healthy, 

Mrs BA