FIRE

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Dave Ramsey and the Debt Snowball

Posted on by David

When it comes to eliminating debt there is usually one name comes to the forefront of everyone’s minds: Dave Ramsey. Ramsey is a radio host, TV host, author, and champion of the debt snowball. This method prioritizes paying off your debts from smallest to largest. Once the smallest debt is eliminated, you take what you were paying on that debt and add it to the payment of your next smallest debt. This is referred to as the snowball method because, like a snowball rolling down a hill becomes bigger, the amount that you pay towards your debts become larger with each eliminated loan.

Ramsey is no stranger to the kind of debt or financial hardship that he counsels people through. In college he began investing in and selling real estate and by 26 had amassed a $4 million portfolio. However he had become over-leveraged and by the next year he declared bankruptcy. Eventually, after recovering from his bankruptcy he began offering financial advice to couples at his church and that turned into a financial counseling business that has helped 6 million families get out of debt. And one of the biggest things he recommends, like we already mentioned, is the snowball method.

Why the Snowball Method?

Advocates of the snowball method argue that the reason it works is because paying off the smallest (easiest) debt first gives you that first victory quicker. Claiming that first victory quickly is exciting and gives you the motivation to keep working at paying off your debt. After the first debt is payed off, all the money that you were paying towards that debt can be added towards paying off the next smallest debt. That extra amount then helps you pay off the next debt quickly as well, giving you more excitement and motivation to conquer your debt.

Being deep in debt, on top of the financial burden and pressure it puts you under, can lead to a real sense of hopelessness. Oftentimes, paying the minimum towards debt can land you deeper in debt than you were before that monthly payment. The whole situation feels a little like drowning. The snowball method works because it gives you the hope that paying off debt is possible. And that hope can be just as important to conquering debt as reason and logic.

Snowballs eliminate debt... and maybe your friends

Criticisms of the Snowball Method

Critics of the snowball method counter with the fact that prioritizing your debts by principle amount rather than interest rate means that you’ll end up paying more in interest than you would if you tackled the debt with the highest interest rate first. That’s true. This is sometimes referred to as the avalanche method (I think just because it follows the same snow motif). Paying off your debts with the highest interest rates first will minimize the total amount payed in interest.

Since your smallest debts may not have the highest interest rates, you will end up paying more in interest using the snowball method than if you were to use the avalanche method so logically the avalanche method is a better option. Because of this I was firmly in the debt avalanche camp. But remember what I said above: “Hope can be just as important to conquering debt as reason and logic.” Debt is illogical. Most people get into debt by trying to keep up with the Joneses. There are a few good reasons to get into debt, like a buying a house, but most of the time getting into debt is illogical. Because of that it’s very difficult to logic your way out of debt.

Debt isn’t a math problem. It’s a behavior problem.

Dave Ramsey

Debt Snowball vs. Debt Avalanche

So which is better, the snowball or the avalanche method? Well if you like instant gratification and prefer to see results quickly the snowball method may be right for you. It allows you to quickly see initial victories and that momentum helps to motivate you to clinch those next victories. Perhaps a debt-repayment plan with a longer outlook for eliminating the first loan may cause you to lose motivation and give up on getting out of debt.

If you are the kind of person who is able to formulate a plan and stick to that plan for the long run, the avalanche method may be the better option for you. If you’re the kind of person who goes into your undergraduate fully expecting to take 12 years to finally finish your PH.D then you can probably take advantage of the avalanche method and thrive.

The FIRE community has been known for its math-based logical approach to eliminating debt and reaching financial independence so it’s probably safe to say that the debt avalanche approach is a better option for most readers here. But then again the kind of people who create a plan and stick to it unflinchingly for years on end aren’t usually the kind of people who frivolously get into debt. So that may be a moot point.

According to Ramsey’s website:

The debt avalanche and debt snowball have a similar goal: to help you become debt-free. But the debt snowball gives you motivation, and motivation is the secret sauce that gets you debt-free faster! When you pay off that smallest debt first, you get a taste of victory. And that feeling of success is the momentum you need to tackle the next debt with a vengeance. 

With the debt avalanche, you won’t get a feeling of accomplishment for a long time. You could lose steam and give up long before you even pay off the first debt! Sure, it might make sense mathematically to begin with the debt that has the highest interest rate, but—let’s get real—if we were focused on math, we wouldn’t be in debt in the first place.
Most fiscally responsible credit card ever

Conclusion

I went into this study favoring the debt avalanche method of paying off the highest interest loans first. And in my mind I still prefer it. For example the best investment you can make is paying off credit card debt. But I’ve never been in debt (other than a mortgage) so I guess this debate really isn’t for me.

But for people who feel crushed beneath the weight of their debt maybe the snowball method is the best way. I think I’m coming around to this side of the argument. Little victories early on in the process can make a marathon feel more like a sprint. And they can make it feel less daunting. If you are the kind of person who can stick to a plan by looking years into the future, the debt avalanche method is probably better, but for most people in a lot of debt the snowball method has real potential. Because for most people debt isn’t a math problem. It’s a behavior problem.

I our next post we’ll simulate a family’s debt with several different loans at different interest rates and calculate which option is better.

What do you think? Have you worked your way out of debt? How did you tackle it? Let us know in the comments below!

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Keeping Up With The (Digital) Joneses

Posted on by Courtney

I’ll be honest: I’m a little bit of a curmudgeon. A scrooge, my husband sometimes (affectionately?) calls me. So when we got engaged, it was no surprise that I decided that I didn’t want to spare the money for an engagement photo shoot. It seemed like a waste of money and time, since we would be getting wedding photos in a few short months anyhow. I’m still glad we didn’t get them, but I remember we were probably the only people in our friend groups who didn’t.

The same thing happened again when I got pregnant. I don’t particularly understand the allure of maternity photo shoots, and I honestly didn’t really care to have pictures of my 9 month pregnant self out there. But again, I felt very much like I was in the minority! Then there’s the newborn photo shoot, first birthday photo shoot, family photo shoot, Christmas card photo shoot, 100th photo shoot photo shoot… you get the picture (pun not intended, but very much appreciated).

Keeping up with the Joneses

Look, I’m not here to rag on photography. Okay, maybe I am a little. But what I would like to talk about is the fact that even though I don’t care to have lots of pictures, and even though I don’t like spending money on intangible things, and even though I hate taking pictures, I still felt pressure to get all of these photo shoots! Fortunately I’m usually able to overcome it, but the pressure is there nonetheless. How does a person survive in a world where “keeping up with the Joneses” is not just a personal desire but an external pressure?

I think part of the problem is that “the Joneses” are no longer just your neighbors. They’re your Facebook friends or the people that follow you on Instagram. The desire to keep up that perfect persona is amplified by the digital sphere in ways our parents never experienced. You see the perfect lives of other people, and want to present a perfect life yourself. In some small, rational corner of our brain that’s left we may recognize that those other people are probably editing their lives to look better, but it’s so hard to actually listen to that when all the happy pictures are staring us in the face!

The Joneses’ Experiences aren’t even Real

Taking it back to my earlier example of photography, we can see how much easier this staged form of life has become. In the past if you ate at a really great restaurant you had to personally brag to your friends the next time you saw them. Now, you take a quick picture of your meal, tag the restaurant, and post it to Instagram. Boom, now all your friends know that your life is worth being jealous of. None of them will even know if you didn’t like the food.

Look at it. Look at it.

The sheer volume of “Joneses” that you have is also an issue. In real life, I spend time around a grand total of maybe 25 people? Sure I see more at church, but that’s about the amount of people who I actually talk to in an average week. It’s possible one of them went on an amazing trip or bought a new car or got a puppy, but the odds are reasonably low. If I log onto Facebook, on the other hand, I have 352 friends! The odds of that jealousy-inducing, impulse-purchase-causing story just went up by like 1000%.

Now I have not only my personal envy issues to contend with, but just the sheer social pressure of dozens of my friends doing something. I may not be all that interested in visiting the Mall of America, but if lots of people I know visit it, by the end of the 2 dozenth album of what so-and-so did on their visit I’m going to feel like I have to go!

Our Experience

As an example, we had a baby roughly 6 months ago. One of the options AT THE HOSPITAL was to get a newborn baby photo shoot. Look, I’m sick and tired of feeling like I have to get this newborn photo shoot. I’ve considered it, a lot, but they’re just not for me. We have nice phones and can take perfectly good pictures ourselves. But the minute I decided I wasn’t going to get one, I felt bad because everyone I know got one.

Do they know something I don’t know? Will I be missing out on something? What’s it going to look like if I don’t get this photo shoot even if everyone else did? Why do I feel bad for not buying something that I don’t even want? I don’t like that it feels like my monetary decisions (and even my decisions that aren’t monetary) feel like they’re being dictated by other people. Being freed from that feeling that you need to follow the crowd is not only good for your soul…it’s good for your wallet as well.

As conscientious consumers, we need to be working to make the monetary decisions that actually bring us joy. That’s going to take work, and a decent amount of introspection. Don’t just do the thing you think you should do. One of the main tenets of FIRE is to work to spend your money on what is actually important to you. So start spending it on things that you truly care about. And maybe stop spending it on photo shoots lol.

What do you think? Did I rag on photography too much? What are you sick of feeling pressured to do/buy? Let us know in the comments below!

David’s Note

Yeah Courtney is a scrooge. She doesn’t even like multicolored Christmas lights all over the house! But she’s my scrooge. She does have a point though about feeling bad for not buying something that everyone else buys. I feel it too even though I don’t care what most people think of me. The fear of man is a powerful force (Proverbs 29:25). We have to work hard to overcome it.

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Who Needs a Financial Advisor?

Posted on by David

Here’s a quote that I found online that really resonated with me. I don’t remember what exactly it was from, but it was a comment that perfectly encapsulated something I’d like to rant about.

This is one of my biggest peeves. That a person would spend a working life accumulating assets only to be totally disinterested in how to manage or even a basic understanding of investing, it’s totally beyond me. Accumulating into the $ix figures+ is a huge big deal! I’ve got friends who have $100K+ in 401Ks/IRAs, and they’re all the same…they all end up offloading it to target funds that operates similarly to these all-in-one’s, or alternatively have a “financial advisor” manage it……a life savings is a heck of a thing to be intentionally ignorant about.

An angry commenter on the internet

Whenever you read the financial news or something about personal finance, it always ends with “consult with your financial advisor”. This is probably for liability reasons so someone doesn’t follow their (usually bad) advice and lose money and then sue them. It’s just a way to cover themselves, but honestly, who has their own financial advisor? Do you even need one?

Who has a Personal Financial Advisor?

MagnifyMoney surveyed more than 1,500 Americans and found that only 30% of those surveyed have ever paid for a financial advisor. And in a recent CNBC survey only 1% of respondents said they currently have a financial advisor managing their money. These surveys pointed to this a fault in Americans. That only those who don’t understand what’s at stake refrain from getting “professional help”.

But what does this “professional help” get you? What will paying a financial advisor $300/hour do for you? That’s right, that’s the kind of money you’d be paying to have a financial advisor. And did you know 10 out of 10 financial advisors recommend you use a financial advisor? Crazy huh? At several hundred dollars an hour it’s not hard to see why. I don’t know about you but I don’t have several hundred dollars to spend on talking to someone about my finances. What could they possibly do to be worth that kind of money?

What does a Financial Advisor do for You?

When meeting with a financial advisor, they will first assess your current financial situation. You’ll list your assets, debts, income, and expenses. Next they’ll identify areas for improvement. They’ll ask you about your plans for the future i.e. buying a house, starting a family, saving for retirement.

Based on your current financial situation and future goals they’ll then recommend paying off debt, growing your emergency fund, or specific investments, for retirement. All of this sounds real great, but it’s 100% a scam. You can do all of it yourself, for basically no charge.

Why you don’t Need a Financial Advisor

A lot of this can seem confusing at first–especially if you haven’t been taught how to manage your own finances. But all it takes is a little research and a desire to learn. And when your future is on the line, you should have a desire to learn! We’re all motivated by different things, but probably everyone is motivated (in part) by money. That’s why we all have jobs. This is your money that you worked really hard for, and if you’re going to spend 40 years working to accumulate money I imagine you care how it’s managed. You want it taken care of properly. At least, I hope you do. As our angry commenter friend said, a life savings is a heck of a thing to be intentionally ignorant about.

A life savings is a heck of a thing to be intentionally ignorant about.

So let’s look at what a financial planner does and how you can do it better, for less money, and actually know what’s going on.

They assess your current financial situation: assets, debts, income, and expenses.

According to common financial terms, assets are anything that increases in value. This means that a house is an asset, and stocks and bonds are assets. Debts are self-explanatory.  They can be seen as negative assets. Net worth is then calculated by subtracting your debts from your assets. For example, a house is an asset and a mortgage is a debt. If your house is valued at $300,000 and you have $200,000 mortgage the net worth is $300,000 – $200,000 = $100,000

Your income is what you bring in and your expenses are what you spend. If your monthly income is $4,000 and your monthly expenses are $5,000, you net income is negative $1,000/month. You don’t need a financial advisor to tell you that’s not good. They’ll then give you advice on what to do to improve your situation like go out to eat less. Again, who needs to pay a “professional” for advice like that?

They ask about your plans for the future. When you plan on retiring, how much you’ll need etc.

Most people plan on retiring at 65 and if you are a younger person, a financial advisor will probably just recommend that. If you are closer to retirement age they will look at your financial situation (as seen above) and try to determine how much you’ll need in retirement and based on that how far away you are for retirement.

If this sounds familiar, good! This is basically what FIRE calculators do. The idea of FIRE is based on using the 4% rule to find out how much you will need in retirement. Greatly simplified, if you spend $4,000/month you will need $1,200,000 in retirement. And based on your net income you can calculate how long it will take to reach that goal.

Using the retirement calculator at networthify.com you can input your annual income and expenses and it will tell you how long it will take you to retire. It will also tell you your required nest egg. If you make $5,000/month and spend $4,000/month. It will take you 31 years to save enough money to retire (assuming you have zero net worth currently). And this tool, unlike a financial advisor, is completely free.

They make recommendations as to what to do to grow your net worth.

After doing this a financial advisor will give you recommendations on how to grow your money. They’ll likely recommend paying off any debts you owe (no-brainer) or growing your emergency fund (literally every financial advice article will tell you that). They’ll also recommend specific investments that will help you grow your nest egg.

This is where the scam really plays out. They’ll almost always recommend you invest in their investment fund or use them as your investment manager. While the hourly rate for a financial advisor is several hundred dollars an hour, the fee to use one to help you invest your retirement savings is usually around 1% of your investments yearly.

If you are saving up to retire with a million dollars, you would eventually be paying this advisor about $10,000/year! That’s a lot of money considering most fund managers actually underperform the general market. So you’re usually paying a financial advisor to perform worse than you would by yourself. All you have to do is buy three index funds and you will outperform any fancy financial manager and do it for free.

So as you can see hiring a financial advisor is rarely worth it because they won’t tell you anything you can’t already easily calculate on your own. And worse, they’ll charge you money to do it worse. More importantly, you should know what is going on when it comes to your life savings. Even if you trust someone else to manage it for you, it’s just good to know how it’s being managed.

An Example

Let’s look at a hypothetical family. And see what we can learn about their finances. And let’s see if they need a financial advisor.

AssetsDebts
House: $300,000Mortgage: $200,000
Savings account: $4,000Car loans: $20,000
Checking account: $1,000Credit card: $2,000
Retirement account: $40,000Student loans: $30,000
Total Assets: $345,000Total Debts: $252,000

This family’s net worth can easily be calculated by subtracting $252,000 from $345,000. This comes out to be $93,000.

IncomeExpenses
$50,000Mortgage: $15,000
 Debt Repayment: $10,000
 Food: $5,000
 Entertainment: $5,000
 Popup Expenses: $5,000
Total Income: $50,000Total Expenses: $40,000

Their income is $50,000 and their expenses are $40,000. Using the 4% rule, that makes their required nest egg to be $40,000/0.04 = $1,000,000. We can see under assets that the retirement account has $40,000 in it. If we plug these numbers into networthify.com we calculate that this family will need $1,000,000 to retire and it will take those 27 years to save up that much.

If you save 20% of your income anyone can retire in less than 30 years.

Super Easy, Barely an Inconvenience

Look at that! We just assessed their financial situation. It looks pretty good with a positive net worth of about $100,000. We also saw that their income exceeded their expenses by $10,000/year. Our advice is to keep saving money for retirement. (They may want to save money for other things too like, say, college for the kids. I’d recommend not putting that into a retirement account so they have access to it before they turn 59 ½.)The amount they’ll need to fund a retirement with current expenses is $1,000,000 and if they do put all their savings into retirement nest egg it will take them 27 years to reach that amount!

If they want to reach $1,000,000 dollars in 27 years they’ll need to invest it in the stock market. Instead of some fancy investment fun with a fancy fund manager, I recommend they put their savings into a three fund portfolio. A good starting point is 30% US Total Stock Market, 30% International Stock Market, and 40% Total Bond Market. That will gain them about 7% gains per year.

There! I just did 90% of what a professional financial advisor would do in less than a page of text! So do you need a financial advisor to manage your money for you? The answer is probably not. Unless you have lots of money from multiple different income sources that are subject to tricky tax codes, you probably can manage all your finances on your own. And if you stick to the tried and true method of investing in index funds (like Warren Buffet advises us all to do) it’s super simple to figure it out yourself.

Super easy barely an inconvenience
Most personal finance is pretty simple.

When Should You Hire a Financial Advisor?

This isn’t to say that you should never hire someone to help you with your finances. There are certain times that it may be prudent to consult with an advisor. Maybe you’ve come into a large inheritance and you want to find the best way to minimize taxes. Or you are about to retire and you want someone to look over your finances and double check that you calculated everything correctly. There are times where it may be wise to consult with a financial advisor, but those are specific events that once are done so is your need for that advisor. Very few people need a personal financial advisor on call.

This is why I’m always annoyed when I read something about finances that ends with, “as always consult with your financial advisor.” Very few people have a financial advisor and even fewer people need one. And if you are taking the initiative to learn and control your finances, you definitely don’t need your own financial advisor!

What do you think? Have you paid someone to help manage your money or do you like to do it all yourself? Let us know in the comments below! And as always consult with your financial advisor… lol

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FIRE Case Study – 29 Year Old Earns $158,000/Year

Posted on by David
Destiny Adams - FIRE Case Study

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

FIRE Case study - Destiny Adams's monthly budget
  • 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
YearsincomespendingsavingAmount needed $     -44,000.00Amount 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
YearsincomespendingsavingAmount needed $     -44,000.00Amount 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!