Friday, May 30, 2014

May 2014 Update

2014 is a year of big changes for us.

As you saw from my wife's previous entry, we bought a house.  This was not part of our original plan.  For at least the past 5 years now (if not longer) we had talked about how nice it would be to have a house that more closely aligned with the long-term lifestyle we envisioned for ourselves.  However it was always a "someday" sort of conversation, something to do after we had reached financial independence (or at least made some significant progress down the road towards it).  But early in 2013 we saw a good opportunity and made an offer on a house (which was eventually rejected), which got us looking more closely for other opportunities.

The house we bought was the fourth one we had a serious interest in (and the third on which we made an offer).  I feel this one is most aligned with our vision of the "perfect home" we had in mind.  It is off the beaten path (in a tiny town in the middle of a sparsely populated area of New Hampshire), which means there is a lot of nature and not a lot of interference from human activity.  It is extremely quiet here -- the most common sounds are made by birds and other animals, and by the weather (wind and rain).  We have a lot of land -- nearly 100 acres, most of it forested -- tucked in among many other large parcels (many of them in conservation), which means our view in nearly any direction consists primarily of green landscapes.  And we have plenty of views, including one from our back deck, and others from some high points nearby that are within easy walking distance from our front door.

We are taking steps to benefit from our newfound richness in land.  We'll set up a garden, we'll harvest fallen timber to use for heating, and we'll add solar panels to drive down the cost of our energy consumption for years to come.  We'll also use it for recreation (hiking and snowshoeing), reflection, and renewal.

For the first time in three years, we have a mortgage again.  We'll be working to rid ourselves of it as soon as possible, but not quite with the aggressiveness that we did during 2008-2011 when we destroyed our prior mortgage.  This is because our new house is our "forever home", the place we plan to remain until old age, until our bodies or our minds no longer allow us to live here any longer.  Because we can take a much longer-term view of our housing, we can recognize the trade-off that comes with delaying pre-payment on the mortgage in exchange for payment on other improvements which will benefit us in the long run (solar panels being a prime example).  However, we are still adding extra principal to each mortgage payment as it comes due.

We still own our older house, which remains mortgage-free.  We're renting it out, using our equity to produce an income.  We are currently netting between 500 and 600 free cash flow each month from the rental house, which is not enough to make us rich, but enough to help us throw additional money at our new mortgage.  So far it has been a good experience, likely because we are renting to someone we know and trust.  If and when we grow tired of renting it, or when our tenant decides to move on, we'll probably sell that house, and use the proceeds to pay off our current home.  By doing that we'd eliminate about 2/3 of our current mortgage debt in one fell swoop.  So although our mortgage balance is higher than I'd like, it does not seem like an insurmountable obstacle.  We'll be rid of it in the next 5-10 years, at which point we should be well-positioned financially to take a step away from permanent employment.

We sold many of our stocks from our taxable account to use for the down payment on the new house.  Overall we had a net modest capital gain which was nice to see but nothing to brag about.   We still have a few stocks left in the portfolio which we collectively agreed were our best long-term investments at this time.  They will still bring in some dividends, maybe $1000 per year at current rates.  I am not opposed to selling them in the future if needed, to pay off the mortgage or make further improvements to the house (such as a high-efficiency electric heating system to complement our solar electricity generation capabilities).  Once the mortgage is gone we'll start adding to these taxable investments again.

Our long-term goals remain the same, but the order in which we expect to achieve them has shifted.  Obviously we bought our new house before achieving financial independence.  We've likely pushed our Appalachian Trail through-hike to a later date.  We still want to achieve financial independence, but it will likely be in a different form than I once envisioned.  Instead of having a huge collection of income-producing securities in a taxable account (capable of paying for all of our spending needs), we will benefit from reduced expenses that come from being in our "dream home" -- lower grocery bills, lower or near-nonexistent utility bills, lower vacation/travel expenses.  I also expect we will tap our retirement assets early, by using a strategy such as the Roth Conversion Ladder (described on PF sites including MadFientist and JLCollinsNH).  Our financial independence will probably be made possible by moderate contributions from a number of sources -- some income from taxable assets, some income in the form of reduced expenses (supplemented by our own labor), the future absence of significant expenses such as a mortgage, perhaps some rental income, and some income from retirement accounts which has been cleverly liberated (penalty-free of course).  By living a modest, enjoyable lifestyle, it is not hard for me to see us making the transition to a sustainable employment-free phase of our lives in the not-too-distant future.