May 10, 2012

Drop Out of Society and be a Hippy Farmer for $500,000

Have you ever wanted to drop out of society and become a farmer?   I've had those day dreams on occasion.  Of course I don't know much of anything about farming and  I never particularly enjoyed working in my parents vegetable garden.   But this raises the idea in my head of a sort of retirement that is an 'off the grid' lifestyle.   But this I mean achieving financial independence by having sustainable lifestyle and minimal cash expenses.   If you own a home, buy a solar panel for your electricity and grow all your own food in a garden then you could be effectively financially independent with relatively lower up front costs.    This kind of lifestyle is probably more along the lines of a hippy commune rather than modern farming. 

I figured it would be a fun exercise to try and determine how much it would cost to fund such a lifestyle.

Some assumptions :

1) You'll need to live in a semi-rural or rural area.   I'm just going to look at properties in my general area with sufficient acreage.   Costs for real estate vary substantially.   Ideally for this to work well you might do best by relocating to a low cost area of the country.   Furthermore an area with a mild climate and some sun could keep your heat and electricity costs low.    I'm not sure what area of the country would work best for this kind of thing, somewhere in the rural South could work well.
2) You'll produce your own food.   This will require some acreage and it will take time. 
3) I assume you won't have to pay income taxes since your income will be pretty minimal.   You won't owe social security or medicare either as you won't have wages.  Your tax liability should be close to zero other than a property tax bill.
4) I'm assuming that you are not taking advantage of government welfare programs like food stamps or medicaid.   Its possible you might qualify for such programs if your income and asset levels are below thresholds but I wouldn't want to plan nor be dependent on government handouts.
5) For any ongoing expenses I will assume that money in the bank can be drawn out at a 4% rate and that it will last forever.   This is not a 100% safe assumption as a small % of the time  you can run out of money.   Alternatively I could figure on buying an immediate annuity if you're old enough and that will help you manage expenses indefinitely.
6) I'm generally assuming a frugal lifestyle with basic necessities and no frills.   I'm sure there are various expenses that people would want to add to what I list here so keep in mind I'm not trying to cover everything for everyone.

Sorting the budget categories.  

Some expenses can be crossed off by up front capital spending and others are going to require monthly spending.   I'm not going to make my own toilet paper or evade paying property taxes so a certain amount of spending is unavoidable.

Spending categories that can potentially be covered via one time up front costs:
These are the expense categories that you could cover via one time costs.  For example if you buy a house outright then you dont' have to pay rent or mortgage payments in the future.  Or if you buy solar panels you won't have to pay for the electricity. 
Housing - Buy a home with land. 
Electricity - Buy a solar panel array and/or wind turbine
Heating - via electricity and/or wood furnace
Food -  Grow your own fruits and vegetables and raise livestock
Water - Via water well
Garbage - Recycling, composting and burning.
Television - TV antennae

Expenses with mostly unavoidable ongoing costs : 
Health insurance - Find a high deductible plan
Property taxes - No way around this usually.  Might get discounted rate for rural farming use, low income or homestead.
Auto insurance - Insure just one car with cheapest plan possible.
Gasoline - Minimize driving
Auto repair / maintenance - DIY everything possible.
Household items / clothing - You could be a total cheapskate on some of these items but at some point you need to buy some new clothes somewhere and I don't think theres good free alternatives to buying some toilet paper.

Optional expenses :
Internet -You could pay anywhere from $20 to $50 for typical internet plans.   Internet service could provide multiple benefits such as phone via VOIP or entertainment via online steaming.
Phone -  A cheapo pay-go cell phone will run you $5-10 a month.  Barebones landlines are usually in the $20 range. 

Housing - I found a house with a 5 acre lot for around $100k to $150k range.   That will cover your food and housing in one.  This is not a fancy house at all and is likely to need some repairs.  Depending where you live, if you shop around you can likely find cheaper housing with acreage in rural areas.
Electricity - A quote on says that a solar array to cover electricity use of $80 per month in my area would cost me about $30k after tax incentives.   If I put $24k in the bank and drew it down at 4% rate then I would have enough to spend $80/mo or $960 a year on electricity.  Given that math I'm better off just buying electricity from the utility.   However I could get a smaller array 1/4 the size for just $5000 after taxes and cover 25% of the cost.   I could combine a $5000 solar array and $18,000 in the bank and cover my electric costs for total cost of $23,000.  Wind turbines could also work if you live in a relatively windy area.   A 900W turbine could cost around $3000.
Heating - I could heat the house with electricity.   That would roughly double the electricity needs and cost me another $24,000 if I just bought electricity from the utility.   Or I could buy extra land and harvest wood to burn in a fireplace.   Another property with 16 acres instead of 5 acres costs about $180k or $30k more than the 5 acre home.   So that extra 11 acres is about $30k more.

$200,000 total would cover a house with 15 acres of land and a solar panel that would generate all my electricity and heat needs.  

Health Insurance - The cost of health care is a potentially huge problem to account for long term.   Health costs have been rising faster than inflation for a while and this is one category that is hard to plan for.  I'm not going to try and solve that here but I'll just estimate a relatively cheap health care costs and cross my fingers.   Of course if you were to do this for real then planning for your health care costs would be a major item that I wouldn't just ignore or hope for the best.   But I'm just doing this as a thought exercise so today I'll ignore the huge looming problem of health costs and figure for basic health insurance coverage.    Ok... enough disclaimer... Shopping at eHealthInsurance I find policies that would cover a family of 4 with a large deductible.   Monthly premiums are around $350 and the deductible + maximum annual out of pocket runs $5000 to $10,000 range.    If I wanted to cover that $350 monthly premium out of pocket indefinitely then I'd have to have about $105,000 in the bank.     The cheapest plans run $200 to $250 a month but they have deductibles totaling $20k for a family and out of pocket maximums around $50k.    Either way I figure I'm looking at $125,000 in the bank to indefinitely cover health insurance and out of pocket costs. 

Property Taxes - If I assume that the property tax is a straight 1% of the property value then I'd be spending about $2000 a year on this tax.   $50,000 in the bank would cover that indefinitely.

Auto insurance, gasoline and auto repair - I'm sure many people would argue that a car isn't necessary for such a lifestyle and I understand that.   I however have always had a car since I've been 16 and I would prefer to keep the ability to drive.   A car can also be a virtual necessity in a rural area.   If I drove one car and had nothing but liability then the auto insurance would probably cost $300 to $500 per year.  I'm going to assume $450 just to pick a number.   Very minimal driving of just 20 miles a week would add up to only about 1000 miles a year.   If I bought gasoline that would cost $200.  Repair and maintenance will also cost a bit, but if you DIY all that then you just have to pay for parts.  I'd estimate another $250 annually for repair/maint.   All in thats about $900 per year for the car costs.   $22,500 in the bank would cover all the auto costs for one cheap car driven minimal amount.

So far I've got a running total of nearly $400,000.   Half of that would be spent on a house and electricity generation.   The other half would be set aside in the bank to cover future costs for health insurance, automotive and property tax.    If you throw in another $100,000 in the bank that should give you money to cover the other items like household expenses, toilet paper and some optional spending on an internet connection.

I figure that $500,000 in up front and ongoing spending could potentially cover a semi 'off the grid' and back to the land semi retirement lifestyle.    Of course this is just an example and I'm sure the costs will vary pretty drastically based on where you live and the details.

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