Sunday, June 24, 2012

YMOYL Book Club: The Crossover Point (Step 8)

This is week eight of the Your Money or Your Life Online Book Club, where we are tackling the nine steps of the YMOYL program. Get more background info. and a complete list of the steps here.

First, please accept my apologies for the long, unexpected hiatus from this weekly book club. Life trumped blogging for so long, that I thought it was pointless to continue, at least until one of you inquired about it and I thought, might as well finish eh? So, on with the show.

Step 8: Capital and the Crossover Point

Each month, apply the following formula to your total accumulated capital and record the result on your wall chart:

capital x current long-term interest rate / 12 months = monthly investment income

After you begin investing your money, start entering your actual interest income on your wall chart. After trends become clear, project that line to the crossover point; you will then have an estimate of how much time you will have to work before reaching financial independence.

I have to admit, I've totally fallen off the YMOYL wagon. Being in the midst of several home improvement projects made tracking every expense cumbersome and depressing. These are definitely not typical spending months. 

What about the rest of you? Are you still tracking every expense? Are you updating your wall chart regularly? If so, do you find that worthwhile?


  1. If you make your chart anyway, then when your spending gets back to normal, you will look like you are making awesome progress!

    The authors do talk about how no month is typical. Plus, depending on how you got the money for all this stuff, you might have some flexibility in how you chart the spending. For example, I'm always saving money toward house upkeep. I chart the amount I'm saving each month as expenditures, even though I'm not spending anything. That's because it's how much a lifestyle of living in a repaired house costs. Then in whacky months like last month (when a tree fell through the garage roof and my computer broke so completely that I had to pay for data retrieval), the money I spent had already been accounted for, so my spending lines didn't show as going off the chart.

    If you were using a loan to pay for the improvements, you could record only the amount you're actually paying toward the down payments and monthly payments.

    Any method that is so depressing that it makes you want to quit is not a good method! Just make sure that the truth is out there, in some form or other, and you're good.

    As for your questions, I am still tracking expenses and updating my wall chart. More on that in the next comment.

    1. Debbie - Thanks for the comment and trying to help. I guess right now I don't feel like the YMOYL program of tracking and charting gives me enough value out for the time spent. Maybe in winter when being outside isn't such an attractive proposition I'll give it another go.

      And as for the depressing bit, well, you should know I exaggerate. A lot.

    2. Ah, well, then just hang on to the good parts from the book. For me the most important ones are that if I really want something but think it's too expensive, there might be a way to get it anyway, and that there are usually more options than you realize at first. Oh, and that we're always prioritizing, whether we know it or not, so we may as well try to get better at that.

  2. I remember loving the crossover point concept when I first read this book, though it got less exciting as I saw that this would happen unimaginably far into the future. For example, my investments were big enough to return what looked like zero dollars on the chart, every single month. But that was a while ago.

    Nowadays, my calculated investment income takes up visible space on the graph. Looking at the money in my (non-pension) retirement funds, and using the 3.215% figure I found for nearly-thirty-year US treasury bonds, I could earn $286.12 per month which is 19% of my current expenses. It's still pretty flat and boring, though. My spending is less flat than I would have expected considering that lots of my expenses are for various savings funds (house upkeep, car upkeep, fund for buying my next car, vacations & electronics, and health upkeep), so that's been interesting. Also, I'm not staying in my budget, so I have some more figuring to do.

    Another thing that's different now than when I first read the book is that I have a pension coming to me soon, one that's big enough to pay all my expenses all by itself now that my house is paid off. And so I've thought of two other charts to make to help me see my progress towards FI.

    One chart is just one line, showing how long I still have to work. I won't qualify for the pension for 3 - 6 more years (from last January 15) (depending on whether I get another job with this employer). I started the year with 72 months to work. After a month I had 71 months to work; that's when I quit my job. Then I got paid for my unused vacation and I was actually able to withdraw the money I had saved in a 457(b) account for this purpose and I got a part-time job, so after another month, I was down to 65.34 months to work. If I ever add another year of service at my old employer, I'll suddenly drop 12 more months from the total. So that will definitely be a fun graph to draw, though last month it went down a little less than 1 month, so that was not very exciting.

    Of course, if I find a way to reduce my expenses, then the savings I have will be able to cover a longer period of time, and that will help, too, but I don't need that to happen in order to see progress. Which is good because it seems unlikely.

    I'm also making a different kind of cross-over chart. One line is the amount of money I need to cover expenses until my pension kicks in. (I've added a 3% inflation rate to my current expenses each year.) The other line is how much I currently have in savings for this purpose. The amount I need will slowly go down to zero as I approach the day I can collect my pension. I expect the amount I have saved to go up and down as I get and then complete these temporary part-time jobs I've been getting.

    But most of the chapter is not even about graphing the crossover point, but about what you will do with all your free time afterwards. My boyfriend's favorite aunt says that a lot of woman spend a year or two after retiring finally getting the house cleaned up and in shape. Then they get bored. Could this happen to me, too? I also want to get the house in shape!

    I hope it doesn't happen to me. I do also want to learn Spanish and write a book. Both of those things could also be done within a few short years. I also want to tutor school children in math, and I know once you volunteer for one thing, if you're not careful, that can spiral into loads of demands on your time, so I'm planning not to let that happen. I suppose if I did get bored, I could give in to some of those demands.

    Still, even if more exercise, more housework, more parties, more reading, more writing, more learning, more cooking and more projects somehow don't fill up all my extra time, I feel quite confident that I will be better at thinking up stuff I'd like to do than any boss could.

    1. Good for you! It must feel great to have a countdown that is so close!

    2. Not great. It doesn't feel that close, yet! But good.

      Except I keep thinking of more things I want money for. We'll see how it goes.

  3. My father had always talked about the definition of success as being when your income from investments is greater than your income from wages. So I kind of grew up with this idea in the back of my mind, but of course make much larger wages than he did, so any kind of cross-over in that respect would have to come when much much older.

    We read this chapter when DH was really starting to get angsty about his job. We were pleasantly surprised at how many fewer years than we thought we could get to a point where we could replace his salary with dividends (I think 10 years). We didn't go that path, but the though was freeing. If only I could scrounge up another 20K/year (that's about the cost of private school and daycare for 2 kids) we'd be able to keep being at a point where I don't have to think too hard about money even if he's bringing in no income. (We won't be saving as much either, but we'll be doing ok.) I'm really going to miss not having to do things like budget. But there's no way to reach even the one person crossover point in 2 years without making some pretty hefty sacrifices, and now is a worse time for that than it would be doing a little budgeting two years from now.

    1. I like your father's definition of success v. much! I guess part of the turnover of this chapter for me is that even though I'm a pretty good saver, and always have been, I think my crossover point is far into the future. But maybe I should chart it anyway in case I'm pleasantly surprised.

    2. There's lots of different levels for far in the future... I'd initially thought "65" or "72" maybe "55"... the idea it could be earlier than that was eye-opening.

  4. I think my problem with the cross-over point is that you can work toward it and get closer, but then life happens and you fall "behind" again in terms of reaching that goal. In my case, I just hope to keep saving but I don't expect to reach that crossover point til the traditional retirement age (65 or later) if ever!


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