FIRE

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How to Retire Early on a Single Income (Part 1)

Posted on by David

By and large, we are a typical Midwestern family. I work an 8 to 5 job, my wife is a stay-at-home mom, and we have one child. It took us seven years to have our first kid, but we plan to have as many kids as God will give us (I hope He doesn’t give us more than four). I only work 40 hours/week because I want to be able to spend time with my family, and actually get to enjoy some of my youth. We spend a good amount of time at church so moonlighting is off the table. Also, we give money to church and other charities. So how does a family with (hopefully) multiple children, limited time, retire early on a single income all while also donating to charity?

The most basic advice you can be given is to make a budget, and then spend less than you make. This is pretty solid advice. We have a budget, but it’s mostly for tracking our spending rather than strictly budgeting it. We find that having a number without holding ourselves to it rigidly works well for us. The main expenses in our budget are groceries, entertainment, gas, bills, and pop-up expenses. Here’s a rough breakdown of what those expenses look like for us, and how we work to spend a reasonable amount in each category.

XKCD - Your monetary worth is now based on memes
Source: xkcd.com

Groceries

This category is pretty self-explanatory. We cook for ourselves most of the time and we buy groceries at Walmart. It comes to a few hundred dollars a month.

When you shop at Walmart, it’s pretty easy to keep the grocery budget low. We make sure to buy non-perishable items in bulk. In our opinion, most generic brands taste just the same as name brands, so we tend to buy almost exclusively off-brand groceries.

For breakfast we usually eat cereal. Cereal is already pretty cheap but we make each dollar stretch by buying the giant bags to off-brand cereal. This doesn’t mean we get the cheapest stuff possible, but we often get Malt-o-Meal brand and save name brands for the cereal for when there is no off-brand available. Breakfast usually comes to $0.50/meal.

I bring a lunch to work which usually consists of a sandwich, a bag of chips, a drink, and maybe a dessert. Courtney makes bread which is super cheap since it’s mostly flour, but homemade bread is far better than even expensive quality bread from a store. Instead of individual bags of chips, we get a family-sized bag and portion it into little Ziploc baggies (which are then reused so we aren’t filling landfills with plastic).

I may get ridiculed for this but I still like Capri Suns so we get a big pack of those and put one in my lunch. And for dessert Courtney makes cookies or cake or something that tastes way better than junk food from Walmart and is much cheaper. If I am working from home, as I have been for the last year, we tend to eat leftovers, or just the same thing I usually eat in lunches. My lunch probably costs $2/day.

Dinner is where things get a little more “expensive”. We love Italian, Chinese, Indian, Mexican, pretty much everything, but what do these all have in common? They cost quite a bit at a restaurant, but can be made for cents on the dollar at home. You don’t even really need to know how to cook. I make a mean stir fry if I do say so myself, and it’s basically just meat, frozen veggies, rice, and whatever seasonings and sauces sound good that evening. And it always makes leftovers. We can make dinner for like $3/meal.

Entertainment

This category consists of eating out, hobbies, going to movies etc. We eat out once a week, on average, each have a couple of hobbies, and will go out for the occasional movie (When movies are actually in theater, unlike this year). Entertainment comes to about a couple hundred dollars a month.

Basically we save money on entertainment mostly by cooking our own meals, but when we do go out for food, we have a few simple rules that help us save hundreds/year.

1. We don’t order drinks. Sure pop tastes good (so I’m told), but at anywhere from $2-$6 for a drink, it can add up quickly. Also pop is terrible for you, even sugar-free pop is still carbonic acid which degrades your teeth. Water is free and good for you!

2.  We never order alcohol. It helps that we don’t like the taste, but the tax on alcohol makes it fiscally untenable. See also all the health reasons laid out in rule 1 above.

3. We don’t order dessert. By now you’re probably starting to think I’m just a kill-joy. But the reason we don’t order dessert is that we almost never finish our plates when we eat out. Don’t stuff yourself just to eat some piece of cake that’s been sitting out in their kitchen for 12 hours. Make your own cake at home. It’s much tastier and cheaper.

4. Take home leftovers. Don’t force yourself to finish the food that’s on your plate because you think it’s wasteful not to, and don’t throw it out. Get a to-go box! Those leftovers can become a meal tomorrow, thus saving you money on your grocery budget. I have heard that there are actually people who think it’s cheap to take home leftovers.

5. We like to see movies in the theater, but we never buy snacks from the theater. We always bring our own snacks to the movies. In this day and age, most movie theater employees don’t bother checking your bag unless you’re carrying in a duffel bag. We make it a game to see how much we can sneak into the theater. Our goal is to one day sneak a whole pizza in!

As for hobbies, both of us have reasonably cheap hobbies. My wife loves to collect books, and I like to rock climb. When done right, neither of those hobbies are horribly expensive. My wife almost never pays full price for a book, opting to either buy them online or just finding books at thrift stores. And even though we have to go to a climbing gym to climb (not many big rocks in Kansas), I get a punch pass that goes on sale twice a year.

Gas

Once again, this category is also self-explanatory. While we try not to drive a whole lot, about once every month or two we travel to Nebraska to see family so that’s about $50 in and of itself. Since I’ve been able to work from home for the past year, we’ve been able to keep gas under $100/month.

We have two cars, both of which get about 30 miles to the gallon. We live about 15 miles from my work place, and while we could live closer to save on gas we like our neighborhood. I save on gas by coasting up to red lights and not accelerating quickly. The majority of gas is wasted when starting from a stop so if you time your lights well you can save a lot on gas. I’m not kidding. Seriously, if you only take one thing from this whole article, I want you to start coasting up to red lights. My wife, who edits these articles, doesn’t want me to leave this in but I’m dead serious. Also I never turn the AC onto full-blast. It takes a lot of energy to run a condenser.

I am serious. And don't call me Shirley.
Coasting up to red lights saves your budget and the environment

Bills

This category includes our mortgage, utilities, and other recurring bills. The mortgage is obviously the biggest part of this section, but we refinanced last year and locked in a rate of 2.625%! We usually keep our bills under $2000/month.

The best way to save on bills is to refinance your mortgage. As a general rule of thumb if you can get a 1% reduction in mortgage rate, it’s worth refinancing. We refinanced from a 4.325% to a 2.625% dropping our payments by about $200/month. Utilities are another area where there is room to save. In the winter time we keep he heat at 68°F during the day and 64°F at night. In the summer we keep the AC at 78°F during the day and 72°F at night. These are totally reasonable temperatures for the Midwest. We are also in the process of replacing all the lights with LED’s. We are waiting until they burn out because it’s dumb to replace something before it’s broken.

Popup expenses

This category is our biggest variable in the budget. This includes annual insurance payments, car maintenance, big trips, and other expenses that are not monthly. We budget $1000/month for this, but it can be anywhere from a couple hundred to a couple thousand. Last year we averaged about $1000/month.

This is hard to keep control over, but in general we save on transportation by driving old cars. Since our cars aren’t worth much we only pay for liability insurance. In my opinion, full coverage is a scam. I also do much of the routine car maintenance myself. My dad and I change our own oil, brakes, and rotors. A high-mileage synthetic oil change will cost you $80 at an oil place (and even more at the dealership), but doing it yourself will only set you back about an hour plus the cost of the oil (about $20 at Walmart). Changing oil on two cars twice a year saves us $240/year. And for the record I’m not a car guy, I just looked up how to do this on YouTube.

As for vacations or big trips, we work to keep costs low by Pricelining hotels, packing meals for car trips, and finding deals when possible. But I’ll be honest, this is the area we are most likely to splurge. We like to try new experiences, so often vacations are full to the brim with different activities.

How Much do we Spend?

So doing a back of the napkin calculation, our essential expenses are roughly $3600/month or $43,200/year. This allows us to use a large portion of my salary for other things.

One of the things we do with this is we tithe 10% to our local church. This isn’t a compulsory giving, but 10% is an easy amount for us and we’re happy to help the church out however we can. We donate to an International Student organization that works with our Alma Maters, and this year we donated to the Prevent Cancer Foundation.

All this isn’t to say look at us we’re so frugal. But I hope it does give an example of how a middle-class family can easily stay under budget. And as I mentioned earlier in this post, we’re not strict in keeping to this budget. While we try to be frugal, we’re not being cheap. We don’t just eat Ramen noodles or rice and beans to save money. Courtney makes real meals that taste great, and we still go out to eat regularly. We don’t turn off the heat in the winter time and when something is seriously wrong with our cars we take them to a mechanic.

There’s a difference between frugal and being cheap, and while that line is different for different people, I don’t think we’re cheap. We don’t pinch pennies or clip coupons, but we like to live frugally so that we can spend money on things that are important to us. Like I’ve already said many times on this blog: financial independence isn’t a race, it’s a slow burn. So based on our spending how early can we retire? Find out in Part 2 of this post next time.

What do you think? What’s a major expense for you? Or what have you sacrificed to reach financial independence? Let us know in the comments below!

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What is Financial Independence?

Posted on by David

In 2020 the total household debt was $14.56 Trillion. That comes to roughly $118,000 of debt per household. Over 20% of student loans are held by baby boomers. That’s over $336 billion owed by people over the age of 50. Their average student loan amount is $40,000/family, which is really depressing considering the average cost of tuition in 1990 was only $4000/year (source). Imagine paying student loan payments every month for 30 years and still having more debt than you started with. That’s equal parts crazy and disheartening. Financial independence is the solution.

What if instead of paying on your student loans until you die, you could be retired on a beach sipping cocktails at 45? That’s what financial independence is. It’s the ability to quit working because you’ve saved up enough that your money does the working for you. When asking “what is financial independence?” you’ve probably got some questions like:

  1. How much money do I need to retire?
  2. How do I make my money work for me?
  3. Can I possibly save enough before I die?
  4. You live in the Midwest, where is the nearest beach?

These are good questions (especially the last one: beaches in Kansas just aren’t the same). Let’s break it down.

1. How much money do I need to retire?

Financial experts will throw out random numbers like $1 million or $3 million. Retirement groups will often give you a number that’s a multiple of your salary. For example, Fidelity says you need 10 times your salary to retire. Those numbers are a good starting point, but they aren’t perfect. This is because your salary doesn’t determine how much you will need to save. Your spending does. If you make $100,000/year but only spend $40,000/year, does your actual income matter when it comes to what you’ll spend in retirement?

Your salary doesn’t determine how much you will need to save. Your spending does.

Enter the 4% rule, a recommendation widely used by retirement accountants, that says a retiree can safely withdraw 4% of their retirement account every year and increase each year for inflation. This means that a new retiree with $1 million can withdraw $40,000. The next year they can withdraw $41,000 assuming inflation is 2.5%. They can continue to increase this withdrawal with inflation forever. As an aside, this assumes you have a retirement account that is 60% in stocks and 40% in bonds. That has to do with risk tolerance and diversification, which is something we can discuss in another post.

So how much do you need to retire? If you apply the 4% rule to your annual spending you’ll find that the number you need to retire is 25 times your annual spending. For example, if you typically spend $36,000 in a year then you only need $900,000 to retire. However, this assumes that you’re retiring tomorrow. If you plan to retire in 20 years, expect your annual spending to have roughly doubled due to inflation. Therefore, if you spend $36,000 now, in 2041 you’ll probably be spending somewhere around $72,000, and will need to have saved closer to $1,800,000. Also, you need to consider that spending isn’t static. Obviously plans change after decades: marital and familial status can change, housing and transportation costs change, and inflation will increase the cost of essentials.

2. How do I make my money work for me?

The crucial goal in financial independence is finding a strategy to make your money work for you. In order to do that you need to buy assets. Assets are things that increase in value and make you money. This means a car is not an asset, but a house is. Other assets include stocks, bonds, and gold. I believe that the stock market is the simplest and best way to grow your wealth.

But how do you know which companies to invest in? If you had invested $1,000 in Amazon in 1997, your investment would be worth over $1,850,000 in 2021. If you had invested $1,000 in Tesla in 2012, you would have over $127,000 in 2021. On the other hand if you had invested in Enron you would have lost it all. How do you pick winners? Easy! Invest in every company, that way you’ll have picked all the winners. You can do this with a total stock market index fund. It invests in every company weighted by the amount of money the company has. This means that you’re more invested in bigger companies with consistent track records. Another option would be the S&P 500 index fund, which is very similar except that it only invests in the top 500 companies.

How do you pick winners? Easy! Invest in every company, that way you’ll have picked all the winners.

Over the last 50 years the stock market has produced an annualized return of over 10% per year meaning if you have $500,000 invested in a total stock market index fund, you will make (on average) $50,000/year.

3. Can I possibly save enough before I die?

I’m a millennial, and I know many of my fellow millennials have resigned themselves to work until they’re dead. In their thinking businesses no longer offer pensions, social security will run out by 2035, houses are becoming increasingly unaffordable, and they’re never going to get to retire. Let’s take a look at if they’re right.

Say I calculate my spending to be $40,000/year. Using the 4% rule my retirement amount comes to be $1,000,000 (Remember, this is assuming I retire tomorrow). If I saved $1000/month in a savings account it would take 80 years to reach $1,000,000. In that case I wouldn’t have to worry about retirement because I would dead long before I had enough to retire. Obviously that’s not practical (and you shouldn’t have more than $250k in a savings account anyway).

The key here is to use a total stock market index fund. Every month you stash money away into the index fund and eventually you end up making more money from interest than you are contributing each month. What this means is that, using the same number I calculated above, I would only need to save $155/month for 40 years to reach $1,000,000. That’s half the time and less than a fifth of the amount I’d need to save per month! And if I did save $1000/month, I would reach $1,000,000 in less than 23 years.

Imagine being able to retire in a little over 20 years without even breaking the bank. $1000 per month is definitely a good amount of money, but it’s not an exorbitant amount of money. That’s the difference between buying two new cars and buying a couple used Toyota Corollas so you can avoid making payments. If you could retire in half the time it takes for most people with your only sacrifice being making the decision to buy reliable (gently) used cars instead of new ones, why wouldn’t you go for it?

4. You live in the Midwest, where is the nearest beach?

Finally the question we’ve all been waiting for. I’ll be honest: I don’t sip cocktails on the beach. I don’t like the taste of alcohol and I would much prefer hiking in the mountains to sitting on a beach. Unfortunately, we don’t have any mountains in Kansas either. Fortunately, my hail-damaged 2012 Hyundai Sonata can get us to Colorado Springs in under 8 hours. So that’s a start. Once I retire maybe I’ll buy some land in the mountains and build a cabin in the woods. Everyone’s got to have a retirement goal. It makes the sacrifices that much easier.

Is There Hope for Getting Free from Debt?

How can a family overcome their $118,000 of debt? First let’s address the fact that this number is based in a little fear mongering. $81,000 of that number is due to mortgage debt, which is not necessarily a bad kind of debt. But let’s assume the other $37,000 is credit cards and student loans. How do you find financial freedom when debt seems to grow daily? The answer is consistency. Consistently earning, consistently saving, and consistently prioritizing what’s truly important over what’s not.

Prioritize paying down debt, prioritize saving for the future, prioritize giving to a charity or volunteering your time. All of those things are worth prioritizing because they are more important than buying new things or keeping up with the Joneses. Find out what’s truly important to you and put all your effort into pursuing it. After you’ve found what is important to you, cut down on or cut out what is not.

What do you think? Are you pursuing financial independence? Let us know in the comments below!

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Where’s The FIRE? – Financial Independence

Posted on by David
Billy Joel - We Didn't Start the Fire

If you’re here you are probably familiar with the FI/RE movement, or Financial Independence / Retire Early. You’ve heard stories of people who retired in their 30’s: rockstars like Mr. Money Mustache and Millennial Revolution have sensationalized saving and investing. These stories capture our imaginations, because most of us like the sound of walking away from our jobs and traveling the world at 35. But what if that lifestyle isn’t for you? What if you aren’t interested in living in your van down by the river (if you haven’t already sold your van and just ride your bike everywhere)? Or maybe you already live on only one income because your spouse stays home with the kids? What if there are aspects of most FI/RE plans that just can’t work in your location or for your family? Or what if retiring early just isn’t what you want to do?

Financial Independence isn’t a race, it’s a slow burn. You don’t have to sell your cars and live off rice and beans to reach FI. I always find it frustrating when I hear FIRE couples who are dual income no kids talk about saving 70% of their income. That’s a sprint towards retiring early and oftentimes they’re making the kinds of sacrifices that I’m not willing to make. Whether intentionally or not, they make it feel like an all or nothing game. That’s discouraging if you’re only making 50k a year and couldn’t save that way even if you wanted to.

Some things are valuable enough that they are worth making what some would categorize as a fiscally unwise decision.

Are you unable to tithe or donate to charity because you are maxing out your 401(k)? Are you putting off getting married or having kids until you are financially independent? I’m here to tell you that you don’t have to. Some things are valuable enough that they are worth making what some would categorize as a fiscally unwise decision. You have to decide what is valuable to you, and sometimes that isn’t going to be the better fiscal choice. The key is to figure out what you value most in life, and make decisions based off of that. Then from there, you can implement FIRE principles that work for you.

I married my wife, Courtney, at 23. She had just turned 21. Probably not the best choice we could have made, money-wise, at the time, but it was definitely the right choice for us as a couple. My wife quit her job as a late shift cashier at a grocery store, against the wishes of her father, but we made a plan as to how we were going to afford to live on a small income, and we stuck to it. Having a second income would have been handy for poor college students, but as I worked days and she worked nights, being able to spend evenings together was more important to us than the extra money.

Because of this, we had to be frugal in other places. We spent probably less than a thousand dollars total on the wedding, including the dress. Our previous decisions also paid off in ways we couldn’t have anticipated at the time. We recently had our first child and my wife became a stay at home mom, but because we were already living on just my income the transition was easy.

We also tithe our local church, support missionaries, and give to charity. This comes to somewhere around 14% of our income before taxes. So after paying a mortgage, raising a family, and giving thousands to charity, how do we manage to save between 25 and 30% of a single-income salary? That’s exactly what this blog is here to do: to tell the story of how an average Christian Midwestern family can reach financial independence.

Financial Independence isn’t a race, it’s a slow burn.

Consistency is the key to financial independence. Consistently earning, consistently saving, and consistently prioritizing what’s truly important over what’s not. The purpose of wisely managing your money is so that you have the freedom to do with it what you wish. Our priorities as a family have been:

  • Courtney to be the primary caregiver at home
  • Generous with our time and money at church
  • Saving for the future

This means we can’t be a dual-income family. It also means we can’t work 60-hour weeks because have other obligations. But it doesn’t mean we just have to settle for a typical 40-year career. As I write this first post, my laptop on one knee and an infant on the other, I’m reminded that the journey towards financial independence can be a slow burn. So if you’ve found yourself asking, “Where’s the fire?” when reading about the headlong sprint of FIRE celebrities, you’re not alone. But that doesn’t mean there’s not a space for us. Here’s to reaching our goals at our own pace, in the way that works best for us.

Hulk like raging fire. Thor like smoldering fire.
It’s OK to be like smoldering fire

What do you think? Are you like raging FIRE or smoldering FIRE? Let us know in the comments below!