Although the initial idea to create this post was not inspired in the Hamlet tragedy it might get to suit it like a glove.
The Scrooge family live in house close to Lisbon. On this house we have a mortgage on which we pay a 300€ each month. Around the house we are in need to do some improvements (most of them we cannot do it ourselves). The reason we decide to do them is because our small son is growing and we want to provide him with a nice place to play outside. In order to do the improvements, we ask for some budgets. Once the first one arrives we face ourselves with a dilemma. To Build or not to Build a Pool.
If you already read some of our posts you know the purpose of this blog is to record the path to our financial independence and how can we create wealth to our son. Although the improvements outside are part of the plan the pool was not. Taking this in consideration we decide to run some math and weather evaluation (where are you going with this?).
Let us start by saying that the weather conditions (See the graph down here) in our living area are not the best for having a pool especially if it is not covered. So we decided that if we are going to build a pool it has to be covered in order to really appreciate it.
Now let us move on to the math part. A pool would cost us around 15000€ plus another 15000€ to the cover. This means a total 30000€ spend right now plus a yearly expense of 1000€. Yes a know, awful math and about to get worst. In order to put this in perspective what is the meaning of this in our target 15 years Financial Independence?
We will have 30000€ less invested right now.
We are increasing our expenses instead of reducing them, in this case in 1000 € a year (at the least).
We are not taking in consideration the “big” maintenance it will require after the 10 to 15 years. (it was about to get worst, far worst).
The next big question was, if we decide to do it what would this decision means in terms of more working years . As you can see in the post “How much Money do I need to reach Financial Independence” we have around 18400€ in yearly expenses and our target is to have a 588800€ portfolio (read the article to understand why, TAXES are the second worst nightmare of an investor).
To Calculate how long would we have to work (more), first we add to the 18400€, a 1000€ meaning our final portfolio has to have: 620800€. (so this pool will add 32800€ to our needed portfolio) The next step is to see how much money would this cost in the 15 years. Considering a 7/8% return on investment will become 82770€ less money in our portfolio (95165€ if we go with the 8%).
So the 588800€ we expected to have at the end of the 15 years will become around 506030€. And in order to reach 620800€ we will have to work between 2 and 3 years more (at the least and considering that we keep adding money to it at the same rate) and remember after the 15 years the pool is certainly in need of maintenance. One other way to see the numbers: you will have to work 20% more time just to have that pool. With all this in mind we are very inclined not to build the pool.
Mr. Fergus