Let’s cut to the chase. This blog is documenting my family’s journey to early retirement and financial independence. Let’s quickly cover the basics:
Who: The Retire29 Family. That’s me (Eric, 30 years old at this time in 2016), Wife29, and 2-year-old Baby29. We are aiming for at least three kids by the time retirement hits. Wife29 is a stay-at-home-mom, since if she was working she’d be doing so for what would effectively be a poverty wage.
What: Early retirement will come first, then full financial independence shortly thereafter.
When: It’s great to set a date, so how about June 8th, 2020. That would make me 35 years old.
Where: We live and I work in Northern Virginia. But, we’ll retire to one of these places.
Why: Easy answer: I enjoy doing a lot of things more than I enjoy working. I am satisfied with my work, but I don’t settle for “satisfied” in any other aspect of life, so I shouldn’t be merely satisfied with work, either. Even if I loved my job, I know that one day I probably won’t.
What kind of other things would I rather do? Write, play with my kids, travel slow, watch documentaries, speak a foreign language, play the piano, and the list goes on. Work does not preclude me from doing any of these things, but work does add a layer of stress and imbalance to life that I would otherwise do without.
How: This is not such an easy answer, which is why I’m writing the blog you are reading right now.
The short of it is that the dividends and interest generated from my portfolio of investments would exceed the amount of expenses I incur to maintain our lifestyle. As I write this (February ’16), that income is $829 per month. I expect to increase that by about 25% per year. That increase is a reflection of new contributions (about 14% per year), dividend/interest reinvestment (4% per year), dividend growth (7% per year), and covered call income (2% per year). That growth would push me to about $2200/month in investment income by my goal retirement date.
One benefit of tracking my expenses each month is that I know exactly what they are. Expenses currently run about $5k per month. $2.9k of that is for our mortgage, and another $350 is for a car loan which is nearly paid off. By the goal retirement date, I am expecting to have about $200k in equity in our current home in Northern Virginia (a very high cost market). We would buy a comparable home in one of several desired retirement destinations and go mortgage-free. Some extensive expense planning tells me that $2200 per month is about what we’ll spend in retirement. Therefore, the plan is at least somewhat realistic.
Before I go much further, I should point out that this all sounds very “cuttin’ it close.” I get that, I really do. A constant in life are the unknowns that exist around each coming corner. I’ve tried to address unknowns like health insurance, or additional children, but I admittedly cannot know every eventuality that can derail this plan. Thankfully, I have two aces up my sleeve:
- I can always work longer. Some may call this failing, but more accurately it would still be a wild success. My job is a fire hose of money coming into our lives. Each additional day I work is another day of active income, another day of reinvested dividends, and another day of capital growth. If I have to extend my working years by six months in order to generate another $300/month in perpetual income, then I’m happy with that.
- I can always make money in other ways. I fully expect that I will continually make money in my life—even long after retirement at (tentatively) age 35. I already make a significant amount of money today outside of my 9-5. I do this through a wide range of fun side hustles like: selling stuff, writing a blog, credit card hacking, and freelance writing. Combined, this might be only a few hundred per month, but I’m but one year into a multiyear journey across all of those endeavors. In four years, I see it as highly likely that these efforts (and others that may come along) will generate a larger amount of income. This is not necessary, but does offer a nice margin for error.
It’s easy to plug numbers into a spreadsheet or words into a dashboard. However, it’s important to note that behind all of these numbers is a real family making real decisions each day and putting this plan into action.
We save around 40% of my gross income. Somehow, we do that, and I don’t make a ton of income and we live in a home that offers each member of our family about 1,200 square feet of individual living space. I’ve also made some monumentally poor financial decisions in my short life. We also own two luxury cars that get around 16 MPG and take premium gas. That isn’t to brag (in fact, it’s quite terrible). I say that to convey that even we have huge strides to make.
But, the average American only saves around 5%. That 35% difference lies in what we call “the details.” If you want those details, I may recommend you look into the Retire29 archives, which now number over 100 posts, or perhaps become a subscriber:
However, if you want the cliffnotes version…
- We pay very little in tax. Through a combination of smart tax strategies like maxing 401(k)’s and IRAs, non-cash charitable contributions, tax-loss harvesting, receiving qualified and municipal dividends, and good ol’ fashioned “huge mortgage interest and property tax deduction,” my effective tax rate (Fed + State Tax / Gross Income) runs about 5%.
- We avoid or optimize Passive Expenses. The opposite of passive income, these are expenses that go out every month without action.
- Avoid: We have no cable bill, gym membership, or magazine subscriptions. I’ve never paid a dime in credit card interest. I spend almost no cash (around $20 per month). I also avoid investment fees like the plague.
- Optimize: My wife’s and my cell phone plans are $5 per month (iPhones, Sprint Network, and 1.5G of data each). We utilize all your basic energy efficiency protocols like CFLs, water heater blankets, low-flow showerheads, and sunlight. I shop our insurance plans each year at renewal and maintain high deductibles.
- When we do spend money, we do it smartly.
- Dining: We still dine out at least once a week. But, we do it smartly. We’ll buy gift cards, or Groupons, or go during happy hour. Sure, dining-in saves around 70% of the cost of the meal, but we really like to dine out sometimes. We make that work by doing it for much less than the folks at the table next to us.
- Groceries: We cook pretty fancy. A lot of thai fusion. We represent about 4% of the aggregate U.S. demand for sesame oil. However, we also buy lots of fresh fruits and vegetables, lots of whole grains/oatmeal/rice, and lots of eggs, fish, and yogurt. It ends up being healthy and reasonably affordable. Because it’s good stuff, it also ends up being something that’s easy and enjoyable to eat. Rather than making an effort to remove anything from our diets, we just add in lots of good stuff, and that naturally crowds out a lot of bad stuff. We’re always trying to get better, though.
- House: We try to do a fair amount of our own home maintenance. But, once again, we would never dream of paying retail for anything at home improvement stores.
- Baby: We use Amazon Mom and Prime for most all of our baby needs. And we do so on a subscription basis, saving about 20%.
- Auto: Like I said above, we own a Mercedes and Corvette that get terrible mileage and need premium gas. This is “black sheep” territory in the family of financial bloggers who predominantly and admirably drive fuel-efficient Japanese cars (I’m stereotyping a little bit). However, we drive very little compared to most Americans. I hitchhike into work most days (not kidding, it’s common in NoVA), and we just don’t need to go out that much if we’re cooking at home. We drive about 7k miles per year. If we ever take a long roadie, then we’ll rent a small car and drive it. This saves huge on gas and depreciation.
- Entertainment: Netflix and Amazon Prime. We still have way more available than we could watch in twenty lifetimes. For birthdays, we’ll go to museums and monuments, and other awesome (and coincidentally, inexpensive) activities.
- Travel: We love to travel. However, travel can be expensive. Enter: Credit Card Churning. This little hobby is insanely lucrative, and has yielded hundreds per month in travel and cash rewards. And my credit score has only gone up, in case you were wondering.
Any one thing doesn’t change a whole lot about your financial situation, but add them up, and those little adjustments become a life-changing amount of money. The first step is to see where your money is going, write it out line by line. Then, empowered with that information, start tackling each line one at a time.
Invest The Difference
As less money goes out, more money stays in. However, cash flow is far better than cash, so this newly-found money needs to be invested. I’m not a big fan of emergency funds, so I recommend being quite fully vested at all times. Markets are the greatest wealth creator in the history of man, and over any 10 year period in history, stocks have outperformed every other asset class. They are the surest path to wealth that there is, as long as you can handle the swings.
I recommend sticking with low-fee index funds, as I do with my 401k. If you feel you have the appetite for a bit more research, then investing in some individual companies is just fine. This is what I do, and I enjoy it immensely. I also very much like the yield factor and the notion of being paid by the companies I own. I view every position in my portfolio like a little employee that works for me while I sleep.
At the core of all of this, though, is the goal of true happiness. We know that money cannot buy happiness. However, money can buy freedom. And freedom tends to allow people the time to cultivate those things that do bring them happiness.
Because of this reality, I like to concentrate the bulk of my efforts at Retire29 to inspiring people to get and stay on this journey with me. There is an incredible amount of advice out there. A lack of information is not the problem. The problem we face is a lack of inspiration and motivation. Yes, we all need a kick once in a while, and knowing the direction we’re on and the steps to take are important. However, there are tons of blogs where most of that advice is delivered in spades. I aim to do a little of that as well, but more so to approach financial independence from a whole-person mindset.
I’m excited to have you here. We have some work to do together, so let’s get to work!