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Chapter 8: Catching Fire: The Crossover Point

Your Money or Your Life by Vicki Robin & Joe Dominguez

Chapter 8: Catching Fire: The Crossover Point

Notes by Roshan A. Loungani, CFP® CRPC®

Retirement Specialist


“Magic of compound interest”

  • Reinvest dividends and interest and your money will work for you.

  • The wall chart helps you monitor this (and keeps it top of mind)

FI thinking calls the gap between income and expenses as capital – money that makes money


A New Line on Your Chart: Monthly Investment Income

  • Capital X Long Term Interest Rate/12 Months = Monthly Investment Income

  • When your monthly investment income crosses over your expense line, you are financially independent.

Total Accumulated Capital – Money you have that you are not planning to spend.


They recommend using the yield on 30-year US Treasuries or CDs (not a recommendation to buy them, just a data point for the interest rate you use).


They recommend a “safe withdrawal rate of 4%” or conversely, your crossover point is when you have 25x your annual expenses saved.


Where Do You Actually Put Your Savings

  • First build your readily available cash in a bank account – 3-6 Months of your expenses

  • Next, they say you should save In qualified retirement accounts

The Crossover Point

  • You should be able to project when this will be using your wall chart if you are consistent with your savings and tracking.

One of the cornerstones – concentrate on making money now so you don’t have to make money later.


Cache – Savings in addition to core capital or cushion that builds for future use.

  • The initial purpose may be psychological – proving you have enough.

Capital, Cushion & Cache – The Three pillars of Financial Independence


Natural Wealth and Financial Interdependence

  • Real wealth is what you know, who walks with you in life, and the society where you give your best and receive your dues - ABCs of Natural Wealth - Abilities – skills and knowledge - Belonging – who walks with you in life. - Community – the society you live in – neighbors, city, environment, nature

  • Questions - Set a goal to do these things below - What could you learn to do for love and money? - What have you always wanted to know or never thought you could master? - What did you love doing as a kid that you could train in now for a side gig of survival skill?

  • Lifelong learning is a key to happiness.

  • Belonging - Whom can you turn to when you need help? - Who will listen to you with compassion? - Who would bring you meals when you are sick? - Who will celebrate your joys? - Our human bonds of love and loyalty will get us through life. - Mobility, urbanization and careerism have sucked the time out of our lives and the “caring economy” - Church and family connected our lives in the past. - From 1970 – 2010, percent of households with two married parents and children fell from 40% to 20% - What relationships from you past need repair? - Can you repair them so kindness can flow? - “Social Capital” that is the wealth you create through your networks of mutually beneficial relationships. - Cultivating enduring friendships and relationships in your community is key. - Belonging is a skill you can build through listening, acts of kindness and simple rituals like weekly call, monthly meetings etc.

Crossover Point Jitters

  • For some crossing over can feel like dying. - Practice what Financial Independence will be like on the weekends before your cross over.

  • Eventually, you will settle into a routine based on what makes you tick.

  • Personal and physical issues that you have put on the back burner may flare up.

  • You will wonder how you had time for a job.

  • Freedom to work for fun, giving back, inspiration or aspiration. - You will decide where to direct your most precious resource, your time. - “We Are called to architects of the future, not its victims” – Buckminster Fuller

Money Talk Questions

  • What Ideas – practical to wild – do you have about how you’d pay off all your debt?

  • What do you want your legacy to be?

  • If you did not have to work for a living, what would you do with your time?

  • If you could take a year off work, how would you spend it?

  • What skis or social networks could you build now to depend less on money to meet your needs?


Bibliography

Robin, Vicki. Dominguez, Joe. Your Money or Your Life. New York: Penguin Books, 2018, pp 245 - 275

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Arete Wealth Advisors LLC and Arete Insurance Agency LLC are affiliates of Arete Wealth Management, LLC. Advisory services offered through Arete Wealth Advisors, an SEC registered investment advisor. Securities offered through Arete Wealth Management, LLC, member FINRA, SIPC and NFA.

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© 2018 by Roshan Loungani, CRPC®.  Vienna, Virginia

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