October 9, 2022
As we transition into the professional world, we are faced with many questions. How much do we save for retirement? Would you like to split your check? Are you successful?
To answer these questions, we need a vision so we may set goals to measure ourselves by. Otherwise, we may find ourselves following Rules of Thumb. For example, save at least 15% of your income for retirement. This is ambiguous as it doesn't specify gross or net income, and this rule does not consider years-until-retirement.
Where would you like to see yourself? First let's consider a five-year goal. This allows me time to earn a Master's degree. Personally, I would like a supercar with a sound system, a powerful truck, and a house to care for these things. Professionally, I would like to be an expert in the emergent field of Artificial Intelligence. I want to make lives significantly better for many people, and I feel like Artificial Intelligence will improve our current solutions.
In the distant future, say 10 years, I would like to say I am retired early and financially independent. However, I have no plan for what I would do once reaching this state. I expect I will continue enjoying my career as an engineer, so why would I stop? I would be foregoing current pleasure for a potential future of nothing, e.g. boredom. Since I have no goal for retiring early, I may as well use the savings to instead invest in more risky assets. For example, a business. Then, as I age, I will purchase more conventional investments like houses, bonds, and stocks. I envision this transition into midlife as a decline in risky-behavior coupled with increased long-term savings. A goal may be to make this intersection occur earlier in life rather than later.
This leads us to pursue our short-term interests with context of the future we would like to achieve, however, with less rigor than our immediate goals. So how can we buy our toys and their accoutrements? We want to have assets to rely on later in life, so buying them outright is not the smart option, as we would only have liabilties and added expenses (insurance, registration, maintenance). However, the house can be considered an asset. Can we kill two birds with one stone? Using a car financing calculator and rental income calculator, we could finance a $120,000 supercar with 20% down for around $2000 a month. To achieve this, we would need two $500,000 houses bought for 4.5% interest and 20% down. This would give us a new cashflow of about $2,000 a month. Then, we can have our supercar paid for while also having an appreciating asset. At my current savings rate, one house would take 13 months to acquire. Then, if we use the income from that property to fund the second, we need 14 months to acquire the downpayment. Finally, we need the downpayment for the car, this would take 3 months with both properties bringing income. In total, we would have our car in 30 months. This would be 2.5 years. If we were to save and purchase the car outright, it would take almost 1.5 years. Can we match this timeframe while also acquiring assets?
This is when we consider dog breeding. This may bring in $25,000 gross income twice a year, so say $30,000 a year net. This would allow us to purchase house 1 in 8 months, if we are able to achieve two litters this year (October and May). Then, house two would take 10 months. Then, we would have the car downpayment in a bit more than a month (if we could produce a litter after purchasing our second house). This timeline must be corraborated with a more realistic schedule of birthing timelines. Overall, our best case scenario is a supercar in 19 months, or also almost 1.5 years.
We have a vision we can build upon, and a plan to achieving it. From here, we may find how much our ideal life will cost per year. Then, we will make a goal for amount of savings to support that lifestyle. I rather this be met by continual income rather than spending savings. That way, there will be something left and I won't worry about living longer than expected.
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