4 ms·

I always think of the total yearly cost of these little recurring payments that are advertised and think whether that's really the best use of the money. It's h

by SandB0x 13y ago

I always think of the total yearly cost of these little recurring payments that are advertised and think whether that's really the best use of the money. It's hard to reason about £2/$2 but it's easier to think about what you can get or do with £100+ $100+. I see a lot of friends struggle to get the money together for a summer holiday, yet every month they're spending £9.99 on Spotify, £5.99 on Netflix, £20 on Sky, etc. Gym memberships in London can easily run to £50 a month but you can haggle them down, same goes for phones - friends of mine are spending like £45 a month on their latest iPhone contracts. Not sure what I'm getting at. Just that it's easy to make living a modern life very expensive if you're not careful.

lucian1900 13y ago
Recurring costs are indeed problematic. I tend to think of everything as costs per month, including food and drinks. That's why I very rarely buy lunch, and even more rarely buy drinks, it feels like a significant cost.
kablamo 13y ago
Yeah $2 can add up. I like to read the early retirement blogs and would like to somehow someday be financially independent. The way I like to think about it is to figure out how big of a nest egg do I need to earn enough of a return to cover that expense in retirement. For example, I would need an investment of $18,000 which earns 4% avg annual interest to cover my $2 daily coffee expense forever. Its fun to think of all your expenses this way and as you build your investments you can see how much of your lifestyle is paid off forever! I built a little calculator to do this math for me: http://networthify.com/calculator/recurring-charges http://networthify.com/calculator/recurring-charges
- Ntrails 13y ago
  Following on from leaving the thread of the topic… I've yet to see a single early retirement blog deal with the issues of investment risk, inflation risk and longevity risk properly. It's starting to drive me a tad potty. I will literally buy you a [starbucks] cookie and mail it to an address of your choosing if you promise to start using "Expected Annualised Real Return" instead of "average interest". To be specific about the problem, a 4% annual interest over 4 years could represent: 2%,2%,4%,8%. Those will result in something different to a flat 4% pa. If you are going to have a withdrawal you need to work out what you do in the 2% years, because otherwise you have less money earning interest than expected and your gap starts to widen. Now what if the fed prints a crapload of money to lessen the national debt load, and you are suddenly facing $10 coffees? Anything other than the risk free rate needs to be treated properly, as a risky return, or we are going to see in 40 years a lot of people who thought they'd saved enough for early retirement, but it turns out they had not. Disclaimer: I am an actuarial student working in investment at a pensions consultancy. My living revolves around trying to quantify these risks.
  - kablamo 13y ago
    Thats a great point. I do mention it in my blog post on withdrawal rates! (http://blog.networthify.com/withdrawal-rates/ http://blog.networthify.com/withdrawal-rates/) Its worth nothing that you could end up with an ever widening gap, but you could also end up with an ever growing surplus if your early years get > 4% return. I don't think any calculators really deal with this other than http://www.firecalc.com/ http://www.firecalc.com/ (which has a terrible ui -- look for the big red 'Start Here' text and then click the 'Submit' button). Building a user friendly firecalc clone has been on my todo list for while. I'm not sure where they got their data. With regards to my other calculators on Networthify, I'm not sure how to create a usable ui that reflects this reality. Also there are at least 2 other big unknowns -- taxes and inflation. So when I'm calculating how much money future-you will have I'm not too worried about ROI. I agree that people need to understand these calculators are just educated guesses. Still -- you do the best you can with the information available. Its better than closing your eyes and not even examining the possibilities. At least you can calculate some worst case and best case scenarios. -- UPDATE Oh hey, do you mean there is some sort of formula for expected annualized return?
    - Ntrails 13y ago
      Of course there is upside to risk, but that doesn't really help me plan for the future. The upside is nice holidays; the downside is penury and food banks. It really is that bad. I would never talk to someone about their 99th percentile asset value, but I might well show them their 1st percentile and ask them a simple "what if" At it's most basic savings for retirement should be considering things like "what does a 40% drop in the market mean for me?" "What does uncontrolled inflation mean for me?" "what happens if I live to over 100?" In general, I obviously believe that knowingly flawed models are better than nothing. If you want to demonstrate some of what's at risk, do a single "1 in 200" scenario. So all of the above in one example. Half way into the projection period the portfolio drops by 40%, inflation doubles and you increase the projection period by 20% (pulling a deterministic scenario firmly from thin air). You can fudge the maths a little and simply output 2 sets of figures: Expected present value || Risky Scenario present value The risky scenario parameters can be hidden away with the other more advanced things, and you've got yourself a nice output demonstrating what could conceivably happen. There are other ways, but it depends what and how much you want to show. More than anything though, I just want to see these calculations properly phrased as estimates. Returns defined clearly as real (or nominal, and model inflation). And a mention given to the cost of living longer. For a cup of coffee, no one cares - not even I. We are talking about 80 year olds having to find work to help account for a depleted nest egg. It's really serious stuff. RE: Edit Annualised return is simply (1.021.021.06*1.04)^(1/4). You are calculating these things based on an expected return on assets, it is important to be clear that it is not an arithmetic average that you are using but a geometric one. I don’t know if you are modelling the withdrawal cashflows (there is no need with a constant rate of interest) which is really where this stuff starts to hit home.
mtkd 13y ago
The monthly costs on personal 'tools' are a material issue. There are a tools like CodeClimate or Creative Cloud that I think people are not using personally because the costs are too high. I believe, with tools like that, that if you make the 'personal use' fee trivial you get a wider base that will go on to introduce it commercially at work - so you net more over time. 20 years ago, as a student, I made this case to IBM on OS/2, I won 'letter of the month' in the internal magazine - they didn't change the pricing for personal use.
- lsc 13y ago
  >I believe, with tools like that, that if you make the 'personal use' fee trivial you get a wider base that will go on to introduce it commercially at work - so you net more over time. I believe this is a bigger part of why apple has recently won (and why that win is not permanent) than people think. When I was a child? the public schools usually had (presumably subsidized by apple) apple computer labs. The thing is? it's /hard/ to transition those "personal use" folks into 'business use' folks. outside use as workstations at trendy places, apple /still/ isn't in corporate the way microsoft is. My own company has a similar problem; I don't really have any products appropriate for the 'serious business' customer, save for co-location, and my co-location is ridiculously low-margin, which is the opposite of what you want to do for your 'serious business' product.
umsm 13y ago
One thing I wanted to point out: There is a difference between food and a service. People are willing to spend more on food than on any service or product if you think about it long term. When looking at my finances, food is always #2 every month right after housing.

by SandB0x 13y ago

lucian1900 13y ago

Recurring costs are indeed problematic. I tend to think of everything as costs per month, including food and drinks. That's why I very rarely buy lunch, and even more rarely buy drinks, it feels like a significant cost.

kablamo 13y ago

Yeah $2 can add up. I like to read the early retirement blogs and would like to somehow someday be financially independent. The way I like to think about it is to figure out how big of a nest egg do I need to earn enough of a return to cover that expense in retirement. For example, I would need an investment of $18,000 which earns 4% avg annual interest to cover my $2 daily coffee expense forever. Its fun to think of all your expenses this way and as you build your investments you can see how much of your lifestyle is paid off forever! I built a little calculator to do this math for me: http://networthify.com/calculator/recurring-charges http://networthify.com/calculator/recurring-charges

Ntrails 13y ago
Following on from leaving the thread of the topic… I've yet to see a single early retirement blog deal with the issues of investment risk, inflation risk and longevity risk properly. It's starting to drive me a tad potty. I will literally buy you a [starbucks] cookie and mail it to an address of your choosing if you promise to start using "Expected Annualised Real Return" instead of "average interest". To be specific about the problem, a 4% annual interest over 4 years could represent: 2%,2%,4%,8%. Those will result in something different to a flat 4% pa. If you are going to have a withdrawal you need to work out what you do in the 2% years, because otherwise you have less money earning interest than expected and your gap starts to widen. Now what if the fed prints a crapload of money to lessen the national debt load, and you are suddenly facing $10 coffees? Anything other than the risk free rate needs to be treated properly, as a risky return, or we are going to see in 40 years a lot of people who thought they'd saved enough for early retirement, but it turns out they had not. Disclaimer: I am an actuarial student working in investment at a pensions consultancy. My living revolves around trying to quantify these risks.
- kablamo 13y ago
  Thats a great point. I do mention it in my blog post on withdrawal rates! (http://blog.networthify.com/withdrawal-rates/ http://blog.networthify.com/withdrawal-rates/) Its worth nothing that you could end up with an ever widening gap, but you could also end up with an ever growing surplus if your early years get > 4% return. I don't think any calculators really deal with this other than http://www.firecalc.com/ http://www.firecalc.com/ (which has a terrible ui -- look for the big red 'Start Here' text and then click the 'Submit' button). Building a user friendly firecalc clone has been on my todo list for while. I'm not sure where they got their data. With regards to my other calculators on Networthify, I'm not sure how to create a usable ui that reflects this reality. Also there are at least 2 other big unknowns -- taxes and inflation. So when I'm calculating how much money future-you will have I'm not too worried about ROI. I agree that people need to understand these calculators are just educated guesses. Still -- you do the best you can with the information available. Its better than closing your eyes and not even examining the possibilities. At least you can calculate some worst case and best case scenarios. -- UPDATE Oh hey, do you mean there is some sort of formula for expected annualized return?
  - Ntrails 13y ago
    Of course there is upside to risk, but that doesn't really help me plan for the future. The upside is nice holidays; the downside is penury and food banks. It really is that bad. I would never talk to someone about their 99th percentile asset value, but I might well show them their 1st percentile and ask them a simple "what if" At it's most basic savings for retirement should be considering things like "what does a 40% drop in the market mean for me?" "What does uncontrolled inflation mean for me?" "what happens if I live to over 100?" In general, I obviously believe that knowingly flawed models are better than nothing. If you want to demonstrate some of what's at risk, do a single "1 in 200" scenario. So all of the above in one example. Half way into the projection period the portfolio drops by 40%, inflation doubles and you increase the projection period by 20% (pulling a deterministic scenario firmly from thin air). You can fudge the maths a little and simply output 2 sets of figures: Expected present value || Risky Scenario present value The risky scenario parameters can be hidden away with the other more advanced things, and you've got yourself a nice output demonstrating what could conceivably happen. There are other ways, but it depends what and how much you want to show. More than anything though, I just want to see these calculations properly phrased as estimates. Returns defined clearly as real (or nominal, and model inflation). And a mention given to the cost of living longer. For a cup of coffee, no one cares - not even I. We are talking about 80 year olds having to find work to help account for a depleted nest egg. It's really serious stuff. RE: Edit Annualised return is simply (1.021.021.06*1.04)^(1/4). You are calculating these things based on an expected return on assets, it is important to be clear that it is not an arithmetic average that you are using but a geometric one. I don’t know if you are modelling the withdrawal cashflows (there is no need with a constant rate of interest) which is really where this stuff starts to hit home.

mtkd 13y ago

The monthly costs on personal 'tools' are a material issue. There are a tools like CodeClimate or Creative Cloud that I think people are not using personally because the costs are too high. I believe, with tools like that, that if you make the 'personal use' fee trivial you get a wider base that will go on to introduce it commercially at work - so you net more over time. 20 years ago, as a student, I made this case to IBM on OS/2, I won 'letter of the month' in the internal magazine - they didn't change the pricing for personal use.

lsc 13y ago
>I believe, with tools like that, that if you make the 'personal use' fee trivial you get a wider base that will go on to introduce it commercially at work - so you net more over time. I believe this is a bigger part of why apple has recently won (and why that win is not permanent) than people think. When I was a child? the public schools usually had (presumably subsidized by apple) apple computer labs. The thing is? it's /hard/ to transition those "personal use" folks into 'business use' folks. outside use as workstations at trendy places, apple /still/ isn't in corporate the way microsoft is. My own company has a similar problem; I don't really have any products appropriate for the 'serious business' customer, save for co-location, and my co-location is ridiculously low-margin, which is the opposite of what you want to do for your 'serious business' product.

umsm 13y ago

One thing I wanted to point out: There is a difference between food and a service. People are willing to spend more on food than on any service or product if you think about it long term. When looking at my finances, food is always #2 every month right after housing.