Over the weekend, I read through Set For Life by Scott Trench. If you’re active on Biggerpockets you already know of Scott. He runs Biggerpockets and also has an amazing podcast on real estate. I got interested in Biggerpockets podcast back when I was purchasing my first property. Of course a lot of what they discuss doesn’t apply for us in India. The US real estate market is much crazier than in Indian market. However, once in a while there are a lot of important bits that apply in the Indian market. In all, I’m a huge fan of Scott Trent since last few years. Reading his book made sense to keep myself on track.
Before reading the book, I really thought the book was about Real Estate investing. It’s not. I was surprised to discover that it discussed more of how to attain financial independence and retiring early. While Scott doesn’t discuss about retiring early but the idea throughout the book was about earning enough through passive income without putting in more efforts that you can do whatever the heck you want. Now this could be either through index funds or even real estate investing. You choose what’s best for you. If you’ve followed this blog long enough you already know that I started off being team Index Funds but now I’m into team Real Estate. The reason for the switch is leverage. When you don’t have a bunch of assets already and are just starting out, real estate is the only affordable asset that gives you 3-5x leverage. FIRE through index funds is possible and I follow a bunch of bloggers who have FIREd only with index funds however the process is too slow and doesn’t give any passive income. You instead have to rely on Safe withdrawal rate once you’re FIREd.
The reason I’m discussing all of this — Scott speaks of a new metric and a one that I haven’t come across – real asset. While I was tracking Net Asset and Net Worth, Real Net worth would really be different than your normal Net Worth. You see I’ve learnt all about FIRE through Reddit and these blogs. However, Real Asset is one metric would make sense for me for the kind of FIRE I want to achieve.
So what’s a Real Asset? Real asset is any asset that either produces income or reduces expense and negating any debt one has. Now due to the nature of this – your retirement funds cannot be counted under real asset since they do not generate income, do not reduce expense and nor can you use them immediately. Most FI bloggers will include their retirement funds in their Networth. And that’s what even I’ve been tracking so far.
When I edited my Spreadsheet to track the Real Networth I had a huge surprise. I’m no way closer to my goal than I thought. Due to the huge mortgage on my new apartment, my real Networth is in negative instead of positive as I first thought. And Scott is right. While I’ve been contributing to my Employee Provident Fund (EPF) and PPF for the last few years, I cannot really use these fund until 60. There’s really no reason to track it in my Networth. Of course this is valid only if you’re looking to retire early.
Calculating Real Networth brings a lot of clarity on the amount I need before I retire. Unlike other FI bloggers I actually like working and I don’t believe that our generation would get to follow the traditional path of retire at 60. The world would be drastically different than how it has been functioning now. I wrote about it few years ago and I still believe it to be true. And hence instead of true retirement I would either do BaristaFI or just coastFI. BaristaFI is what I’m tracking towards. I wouldn’t mind CoastFI either which would mean I work minimal to cover my expenses and let my investment compound. I wouldn’t need to add any more amount into my early retirement fund. What I’ve also realised is that due to the new definition of Networth for me, I’ll have to re-evaluate my BaristaFI number and rectify the goal post. Agreed that the goal post has gone farther away but I have to come to terms that I wasn’t tracking the right metric for me.
To be transparent, here are the new targets for BaristaFI. I would first like to bring the number to 0.
April 2021: INR -30,59,460
Let me know which is the next book I should read.