A no-code tool to create/maintain visual end-to-end UI tests.
74 karma · joined October 9, 2007
Just for reference, I was living on less than $750/month until I got married. The companies I worked at had plenty of free food. I didn't need a gym membership because the handyman work I did on my investment properties was more than enough. Until we had kids, my spouse and I were still able to survive on less than $1,000/month. We are based in the south SF Bay Area. We had 100% income replacement by our mid-30s.
Glad to see a fellow practitioner. Best wishes on your journey!
My portfolio used to be about 50/50 in fixed income securities and real estate. I got lucky with the real estate, and I got out because I didn't think my luck would last forever. Now my portfolio is made up entirely of fixed income securities and blue-chip stocks that pay dividends. The dividends and interest payments are laddered such that I recieve at least 2 payments a month. I didn't choose securities based on payout dates, so the amount does fluctuate from month-to-month. However, the portfolio generates enough monthly income that the "leanest" month is greater than my paycheck's monthly gross income.
Being a software engineer myself, I don't qualify for the Roth accounts so most of my investments are done in a standard taxable account. I don't buy any particular funds -- just a variety of boring bonds and stocks.
I did try the RE (retire early) part a while back. It lasted about 6 months before I got too bored out of my mind. I still continue to work because of the mental stimulation and the social connections.
Step 2: Invest in very conservative investments that throw off free cash (I personally like fixed income like US treasuries and municipal bonds). The operative word is "conservative" so that the passive income is reliable and can be treated as a permanent offset to lifestyle costs.
Step 3: ...
Step 4: $$$ -- As the income in Step #2 grows, it increases the savings ratio in Step #1 (a geometric series!).
This is a doable formula anywhere (I currently am working and raising a family in Silicon Valley) and I've achieved financial independence in about ~10 years. I still keep working to stay engaged.
In my particular case, I had saved all my bonuses (both cash and equity) and most of the income from the aforementioned portfolio. I was also fortunate to have held a consistent side job for most of my career.
Yes, the market value of the securities and assets may fluctuate day-to-day, but the income doesn't. As long as the borrower is of sufficiently high quality, then there really isn't any concern about the principal getting paid back.
I've also found that the longer you are away from school, the harder it is to go back for a variety of reasons (motivation, money, family, etc.). I guess in a world where there are statistically millions of people like me (C'mon -- there are 6 billion+ people in the world!), it would cost less political and social capital to hire or invest in somebody with a degree than somebody without.
I tell everybody around me it's surprisingly easy to become financially independent. By saving s% of my income investing with a rate of return is i%, then the worst case is that I should be able to completely replace my income in i%/s% years. I was saving 30% (actually more) and investing at around 5%, which resulted in complete income replacement in around 10 years.
My passive income from my investments in government bonds is enough to cover mortgage, basic living expenses for my family, and two family trips a year.
Source of money for investments:
- savings from many years of working and diligently saving
- some real estate investments
1) acid ratio (liquid assets / short term liabilities)
2) gross operating margin
3) net operating profit margin
4) return on capital/equity
5) return on balance sheet assets
I also compare the stock in question to other bonds and stocks of other companies similar in size or industry. This is just to see if the company is managing its money well in relation to other companies.
Finally, tax consequences of sale. The conventional wisdom of market returns of 11% (US treasuries + 8% * portfolio beta , 1.0 for market portfolio) loses its appeal if your tax bracket is sufficiently high (i.e. software engineer in California) .
The basic living needs of my family (food, clothing, mortgage, utilities, cars, etc.) has been covered by my investment portfolio for several years by now. Any additional income goes straight towards increasing said portfolio.
Rough estimates for the source of the principal for the investment income:
- 50% - savings from worked income
- 30% - earnings from real estate investments
- 20% - earnings from outside consulting / freelance software projects.
I personally believe that anybody who exercises a fair amount of discipline to save away their income and spend reasonably can become financially independent within 15-20 years. Thanks to what I learned from my accounting classes, I was able to accomplish this in less than 10 years.
"Default" doesn't always mean that the principal won't get paid back. In almost all cases, it means that timely interest payments won't be made. Even in the most recent bond crisis in Puerto Rico, the "risk of default" was somewhat mitigated by the threat of shutting down the government offices (i.e. put the employees on unpaid furlough) just so the Puerto Rico could make their bond payments.
IMHO, it would be political suicide for a municipality or state to let bonds default. Here's an interesting article on this subject:
http://www.publicbonds.org/public_fin/default.htm
The default in the 1975 New York case was for revenue bonds. I don't know the exact details, but they sounded like LTX bonds.
I don't want to sound like I'm lying, so I'll provide a very benign example of the "common, legal, and IRS sanctioned" income streams,
Let's suppose that I have a house that's paid off. Instead of selling it and incurring all sorts of taxes, why don't I: 1) take out a mortgage against it 2) rent it out
The mortgage is not really income, according to the IRS, but a valid business expense. By renting it out, I get the tenants to pay back the mortgage for me.
It depends. Munis come in all flavors and sizes; the best ones IMHO are state-level "general obligation" (i.e. backed by state taxpayers) that do NOT fund revenue projects (this will make them taxable anyways). The second best ones, again in my IMHO, are classified as UTX ("Unlimited Taxation"), which gives the local government the power to raise local taxes in order to pay bonds. The ones I would be most worried about defaulting are the ones classified as LTX ("Limited Taxation") that fund revenue projects like local stadiums or toll roads; these bonds are paid back by the money collected by the underlying asset. Obviously, these would be the easiest to issue, as they do not require a referendum vote like UTX bonds, or state legislature approval like GO bonds.
Some states like California are constitutionally required to pay bondholders before any state-funded programs. Some states (like California) are also legally required to maintain a sinking fund, i.e. they can't make interest-only payments, but must also set aside money to pay back the principle owed to bondholders ever year. The "budget crisis" in California is because after paying back the 2 constitutionally mandated budget items, the state doesn't have enough money to keep the same level of spending as before.
In California, The interest on bond payments is an automatically budgeted line item every year; lawmakers can not change this without making changes to the state constitution.
The expected cap rate (annual rent / purchase price) in on both the East Coast and West Coast is roughly 5-7%. In places like Texas and Ohio, the cap rate is roughly 10% Since a "competent" property manager (like myself =P) usually charges about 10-15% of gross rent, this means your expected cap rate will drop to about 4.5%-6.3%.
Expense rates are roughly mortgage (7-10%) + taxes (1-2%) + maintenance (1-2%). Most commercial properties also don't have a high expense ratio because tenants typically like to keep their places of business up and running. However, keep in mind that commercial properties are usually paid back a faster schedule (usually 10-20 years) than residential mortgages (usually 15 or 30 years), so there are much larger monthly payments.
People usually do real estate for the tax benefits; there are many common, legal and IRS sanctioned ways to create tax-free income streams. However, to get to that stage requires starting with a significant amount of equity.
I use municipal bonds to immunize my expenses (http://en.wikipedia.org/wiki/Immunization_%28finance%29). Municipal bonds (affectionately called "munis") are not subject to federal income tax because of a Supreme Court decision in the 1890s. Most states also exempt the interest on their own municipal bonds from their own income tax (of course, if you're in a state with no income tax like TX, then that's not really a problem). Furthermore, some states (like California) are constitutionally obligated to pay the interest on bonds before they allocate money to the the state's general funds.
My immunization strategy is simple: for every $10,000 I put into munis, I get anywhere between $40-50/month (average return on capital is in the 5-6% range these days) in passive income. Keep in mind that since this is not taxed, this translates to a pre-tax rate of return that's closer to 6.94%-8.33%, assuming a federal tax bracket of 28%; in reality it's a lot more because of FICA and state income taxes.
For long term growth and in tax-advantaged accounts, I use zero-coupon munis. Yes, being in a tax-advantaged account diminishes the allure of munis, but some of those bonds are now paying in the 7.5%-8.5% range.
YMMV, but another great tip I got from my accountant was to set my fiscal year to end in July. It's right between the April 15th deadline and the October 15 extension deadline, when business tends to be lighter for most accountants.
- a relentless focus on safety
- something you enjoy (weapons vs striking vs grappling, etc.)
- instructor who communicates in a style you understand (I'm an engineer, so I use physics to explain concepts)
- senior students who help the newer students
Since effective use / sparring is really more about game theory, there really is no one "superior" art to rule them all.
My personal experience:
- Volunteer teacher for various youth groups
- 2nd degree kendo, co-captain of varsity team, regionally ranked in Japan
- 1st degree karate, varsity team
- beginner aikido
Professional: trying to write an HA/clustered "Hello World" app. The knowledge of the deployment and operational aspects has served me well in my software career.
Financial: actively managing my own real estate investments.
The key differences between running one's own software business and actively managing one's properties are:
- it's a turn-key business where the "product" is so simple and in such high demand that it is relatively hard to screw up by any reasonable person
- a deeper understanding of the tax system; software consulting typically touches either Schedule C or Sched E (Part 2), while real estate involves schedules A, C, and E(part 1 and 2).
- a deeper understanding of protecting myself legally