I’ve been wanting to do a FIRE case study to test a budget for potential FIRE-ability. So I looked for a likely candidate and stumbled across “make it”. CNBC’s “make it” is a series that features millennials who work hard and make a lot of money and breaks down how they spend it. In January’s video How a 29-year-old built a career and 2 side hustles that earn her $158,000 a year, they interviewed Destiny Adams. She is 29 years old, works three jobs and made $158,000/year. According to the article she spends her mornings making YouTube videos which brought in about $12,000 last year. She then works at her salon and online hair extensions shop which made $86,000. After that she goes to her day job with the state which pays about $60,000/year.
Adams revealed that she grew up in a low income household and watched her grandmother struggle in retirement and her mother struggle to save for retirement. She knew she didn’t want to struggle like that. So to overcome, she decided to work several different side gigs and make sure she could save for retirement. She said she wakes up early and works until 2:30 AM. Because of her strong work ethic I thought this would make a great FIRE case study.
So let’s look at her budget and see how it measures up. I want to make clear that I’m not here to be jealous of the money she makes nor am I looking to judge any of her spending. This is just an exercise in analyzing budgets for the purpose of determining if reaching financial independence is a reasonable goal.
Destiny Adams’s Monthly Spending
- Discretionary: $1,715 (includes entertainment, beauty, shopping and other miscellaneous expenses)
- Savings and investments: $1,500 (includes liquid savings and 401(k) contributions)
- Rent: $1,340 (for a two-bedroom apartment)
- Food: $900 (includes $150 for groceries and $750 for eating out)
- Insurance: $295 (includes health, dental and car insurance)
- Gas: $235
- Utilities: $140 (includes heat, electricity and Wi-Fi)
- Subscriptions: $83 (includes $20 for a car wash service, $30 for the gym, $19 for Hulu and $14 for grocery delivery)
- Phone: $75
She also has $44,000 in student loans. The reason they don’t appear here as a monthly liability is because the payments were put on hold because of Covid-19, though the payments are probably back on as of now. She is hoping to qualify for the Public Service Loan Forgiveness program (though the odds of being selected are much lower than people think.
What’s Her FI Date?
Destiny’s self-reported spending is $6,283 which includes her $1,500/month into her 401(k). So if we exclude her retirement savings and multiply the rest by 25 (the 4% rule) we get a FI number of $1,434,900. She needs a little less than $1.5 million to retire and keep her desired lifestyle. Taking into account her $44,000 student loan debt and assuming the market returns a conservative 7%/year, if she makes 158,000/year and saves $18,000/ year it’ll take her…
| nest egg | ||||||
| Years | income | spending | saving | Amount needed | $ -44,000.00 | Amount to go |
| 1 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ -29,080.00 | $ 1,463,980.00 |
| 2 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ -13,115.60 | $ 1,448,015.60 |
| 3 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 3,966.31 | $ 1,430,933.69 |
| 4 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 22,243.95 | $ 1,412,656.05 |
| 5 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 41,801.03 | $ 1,393,098.97 |
| 6 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 62,727.10 | $ 1,372,172.90 |
| 7 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 85,117.99 | $ 1,349,782.01 |
| … | … | … | … | … | … | … |
| 26 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 980,652.94 | $ 454,247.06 |
| 27 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 1,067,298.64 | $ 367,601.36 |
| 28 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 1,160,009.55 | $ 274,890.45 |
| 29 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 1,259,210.22 | $ 175,689.78 |
| 30 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 1,365,354.93 | $ 69,545.07 |
| 31 | $ 158,000.00 | $ 57,396.00 | $ 18,000.00 | $ 1,434,900.00 | $ 1,478,929.78 | $ -44,029.78 |
31 years to reach financial independence!
That is a viable path to retirement. It’s not super fast, but it is quicker than the typical American worker. Currently 29 years old, if she started now, she would be able to retire by the time she was 60. That’s 5 years earlier than the official retirement age of 65. It’s also older than 59 1/2 which is the age you need to be to withdraw from your 401 (k) or IRA. Obviously Destiny is on an acceptable path to retirement, but it’s not a great path. If she ran these numbers herself I can imagine she would probably modify her budget a bit.
This is also assuming that she contributes $1,500/month into her 401(k). The article said that she usually likes to spend $1000/month on travel and in 2020 (pandemic) she’s been putting some of that money into a savings account. Her budget says that the $1,500 includes liquid savings and 401(k) so depending on how much of that savings is her actually going into retirement accounts her financial independence date could actually be quite a bit further off than 30 years.
Something’s not Quite Right
But there’s an even bigger issue here. There is a huge disconnect between the amount she is making and the amount she budgets for spending. Even if you include what she contributes to her 401(k), her budget only covers 48% of what she made last year.
She said she likes to buy designer handbags. In 2020 she spent $4,300 on Louis Vuitton purses. She also bought a Mercedes in 2015 for $21,000. Though it violates one of my rules of car buying, I’m not here to judge. Different people find different things of value, and if she gets satisfaction and joy from her purchases then that’s great. I’m just interested in the FIRE analysis.
What If?
What if she put all that extra money into retirement savings instead of just $1,500/month?
Her FI number would still be the same: $1,434,900, but this time savings would be $100,604/year. I understand that this is nigh on impossible, but roll with me on this. Consider it a thought experiment. With those numbers her financial independence date would be…
| nest egg | ||||||
| Years | income | spending | saving | Amount needed | $ -44,000.00 | Amount to go |
| 1 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 53,524.00 | $ 1,381,376.00 |
| 2 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 157,874.68 | $ 1,277,025.32 |
| 3 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 269,529.91 | $ 1,165,370.09 |
| 4 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 389,001.00 | $ 1,045,899.00 |
| 5 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 516,835.07 | $ 918,064.93 |
| 6 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 653,617.53 | $ 781,282.47 |
| 7 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 799,974.75 | $ 634,925.25 |
| 8 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 956,576.99 | $ 478,323.01 |
| 9 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 1,124,141.37 | $ 310,758.63 |
| 10 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 1,303,435.27 | $ 131,464.73 |
| 11 | $ 158,000.00 | $ 57,396.00 | $ 100,604.00 | $ 1,434,900.00 | $ 1,495,279.74 | $ -60,379.74 |
Just over 10 Years!
She could retire before she hits 40 years old. That’s the power of upping your savings. Destiny also mentioned that she wants to travel more and buy a house which will most-likely increase her monthly spending, but I think she makes more than enough money to be set. The only issue is that she’s not committing to savings.
Since she’s self-employed as well as working a regular job she can take advantage of a solo 401(k) and contribute up to the max of $58,000/ year. She’s also a state worker so she should have access to a 457 plan. It’s like a 401(k) but only for government workers. So that’s another $19,500/year on top of her IRA. If she committed to saving, she could save $83,500 in tax advantaged retirement accounts. That would almost completely cover her $100,604/year in savings. The rest could be put into a taxable brokerage account.
What do you think? Does this FIRE case study make sense? Can you think of more ways for Destiny to save money? Maybe a better plan to take advantage of her tax advantaged accounts? Let us know in the comments below!