July 2018 NCF Update: It’s Amazing What You Can Accomplish With Discipline and Determination
This is a special update on our NCF goal journey! After saving with discipline and determination, we can finally afford a decent place where we might retire at! We felt strongly about saving the cash for our future home and, folks, I think we saved enough. So what kind of progress did we make last month?
Welcome to the monthly update of our house fund goal aka Nuestra Casa Fund (NCF). Our goal is to save enough to fully fund our home purchase before we retire. We measure our journey progress by providing a monthly update against our benchmark.
There are reasons to celebrate in our household. As of last month we met our NCF goal and ahead of schedule at that. We started tracking this goal publicly when had about 23% of the funds saved. And we’re done!
People like to pay off a mortgage before they retire and that’s sort of what we just did. We now can afford to buy our house without a mortgage.
Cheers to fully funding our NCF, but more importantly, to what this will mean for us in the near future. Even though we’ll continue to rent, in the states and abroad, for at least a couple of years, we no longer have to worry about how we’d pay for a house without depleting our Freedom Fund.
Getting to home ownership without involving decades of carrying a mortgage was important to us, and we found a way to get there. We forge our own path to home ownership because we dared to do things differently.
We kept saving and investing until we reached our destination
Saving for this goal did not feel as hard because we’re now very used to saving as much as possible. Instead of setting a small percentage toward savings and allocating the rest to spending, we didn’t limit our savings rate. If an item doesn’t add value to our lives or brings happiness, we don’t buy it. That mostly stops us from buying more than we need.
We didn’t deprive ourselves of anything while trying to reach our goal. For us, it’s important to also enjoy the journey. After reaching financial independence, there was a seamless transition to the house savings goal, so we shifted and continued.
We already hit our “lean” FI number last year and, since we were waiting for other things to fall in place before retiring, it made sense to continue saving and make our future home purchase a priority. By the time we retire, we’ll have enough for a house and enough to withdraw a $38,000-$41,000 annual income from our investments. Sometimes we look at each other and realize how awesome it is to have made it from rags to riches. Step by step we got here, and winning the lottery had nothing to do with it.
We try to stay chill about our account balances because the market might get bearish at any time now. The money that we get to invest today might just help to maintain our balances, but we don’t expect significant increases in the near future. The volatility in the market can make anyone freak out, but I’m comfortable with volatility as long as we have the money that we’ll need soon, out of the stock market. The beauty of continuing to invest through a bear market is that we’ll keep buying more shares of companies at an even lower price.
It feels so surreal
If you were to tell me just eight years ago that we would be in this situation, where we are almost free from jobs and with the equivalent of a paid-off house in a brokerage account, I would’ve called you crazy! I didn’t think it was possible for someone like me, who basically had a negative net worth back then, to reach financial goals like the ones mentioned above. Worse yet, I wouldn’t even have deemed them as real case scenarios, if it wasn’t for people like Vicki Robin who wrote Your Money or Your Life. (This is an affiliate link, which means if you buy we get a tiny compensation at no cost to you.)
The truth is that money doesn’t discriminate against your skin color, race or where you came from. Wealth stays with the people who know how to take good care of it.
You also don’t have to be a genius to become wealthy. You just need to spend a lot less than you make. Put your money to work for you and let the investments do the compounding magic.
Is saving to fully fund a home purchase for everybody?
Obviously saving to have 100% of the payment is not for everybody. If it was going to take us longer than, let’s say five years, we’d probably try to bring as much of the down payment as possible to closing and buy with enough to avoid PMI (Private Mortgage Insurance). PMI is a total waste of money.
Two things that really helped us save faster were: 1) high income and 2) very low spending
If you don’t spend all your money and invest it instead, you’ll be surprised how fast your money grows on its own.
The area where you live might not allow you to save to fully fund a purchase, but if you’re planning to retire early, then you can probably save to buy your place in a desirable area after retirement.
What criteria do we follow for deciding if buying makes sense for us?
We have to meet a set of criteria to consider buying vs. renting. For example, we knew that the chances of living in one property longer than five years before retiring were slim, so buying a house wouldn’t make sense. We’ve been living closer to work for almost four years now and, if everything goes according to plan, we won’t make it past five. 😉
Also, houses are not cheap near work and renting made a lot more sense.
Another consideration is the employment stability. If we didn’t have very “secured” jobs, we would rather rent and stay mobile. When you rent, you can easily pick up and go if you change jobs.
What I know we wouldn’t do, knowing what we know, is buy a house until we can bring at least 20% of the down payment and be far ahead on our FI journey. (I made that mistake before and it will never happen again!) Since we waited to concentrate on saving for the house at the end of our accumulation stage, we used the power of investing in the stock market to help save for the house while renting. Last year we converted some stock funds to bond funds. That accelerated our goal and allowed us to increase our target.
People usually buy homes and count every penny, mostly from a two-income household, as part of their budget. The problem with this is that if one person loses his or her job, suddenly they can’t afford their inflated lifestyle and run the risk of losing their homes, like so many did during the housing bust in early 2000s. Another rule of ours is that if we can’t afford all the expenses with one salary, we wouldn’t commit to a mortgage.
Those are just a few things we consider when deciding on renting vs. buying or when we should buy a home.
Now, let’s see how well we did last month in completing our goal.
July NCF Update
We expected to meet our goal by August 2018. The allocation for our goal is 80% bonds and 20% cash. We decided on this allocation, so that our goal can keep up with inflation, without the risk of major losses during a downturn. Our goal is to manage risk rather than seek huge returns.
Below are our results since we started tracking this goal.
|NCF Monthly Progress Since 2017|
|Month||Percent of Goal Met||Benchmark||Percent Increase Towards 100%|
|September (new increased target)||78%||77.2%||28.9%|
How did we reach 12% of the goal last month when we were behind our benchmark for the entire year?
For one, we were front-loading some retirement accounts during the first half of the year and that stopped us from fully contributing to the NCF during that time. After we got done with that, we were able to contribute more to the NCF.
Second, we were counting on the job bonuses we received last month to be able to reach our goal by August. The bonuses were pretty decent and took us to the finish line! All the money was invested for our future needs. We did not spend un centavo!
The total return for the month was $137.72. The bond funds were down by $333.14 and we had income returns of $470.86. The bonds have been down one month and then up the next. The estimated annual yield for the NCF is 2.28% as of 6/30/2018. An annual return of 2-3%, with very little risk, allows it to keep up with inflation and that’s our goal with this money.
That’s it for now folks. We’ll now leave the NCF alone and just reinvest the monthly income until we find our next permanent home. There’s a lot of traveling to do before that. We’re looking forward to that chapter in our lives where we’ll explore the world for months at a time. Oh yeah, baby!
We already started drafting a tentative itinerary that would involve at least six months of traveling between a few continents.