We entered this journey already on it.
With the arrival of our first son, I left the work force. We planned for it only in that we decided it would be great for a parent to stay home, but we did not prepare financially. One salary in Seattle and another kid later, I re-entered the workforce with $20k in debt. That meant we lived beyond our means by $5k/year for four years. Which – probably a shocking thing for the FI community to hear – isn’t bad considering where we were living and not being of the FI-mindset. And we were not depriving ourselves. But we also lived in a very walkable neighborhood – it wasn’t unusual to not use the car all week – and didn’t pay for daily childcare.
We knew exactly what we were doing and we took (baby) steps to minimize that:
Cut magazine subscriptions
Reduced cell phone and internet bills
Stopped dry cleaning
Ate out less
But we also did a lot of things on the opposite end of that spectrum:
We vacationed. A lot. Mostly weekend warrior trips around the PacNW, but also CA, Whistler, HI and East Coast trips. Miles/points paid for some at first, but certainly not all.
We went out. A lot. We lived in an incredible neighborhood with great restaurants, breweries, bars and live music. We couldn’t resist.
We paid a monthly fee for a babysitting service. Then paid them by the hour when we used them!
I could go on with both fronts. This was pre-FI and I don’t regret it, but it’s funny to look back and try to see the logic in these decisions.
So when I say we were already on the journey, we had already trimmed a lot of the unnecessary monthly bills about 10 years ago. It was the FI community that gave us the nudge to take savings a lot more seriously and be a lot more budget-minded. We’re almost 10 months in and we’ve taken the basic steps:
already paid off one credit card and have a plan to pay off all debt
I thought a W4 adjustment would be a logical optimization because we had a large tax return and it would be great to have a bigger paycheck instead. But I can’t figure out what our ideal withholdings should be on our W4. Files jointly with two kids … he claims 1, I claim 2. I see conflicting information on the internet and I’m confused. At the same time, the IRS calculator is not available while they’re updating it for 2018 tax law changes.
Maybe understanding this will hit me on the head or maybe it’s no big deal. A large tax return isn’t the worst thing in the world. But until then, I’m just keeping on the road of spending less, saving more, and reducing debt.
I have nine years. What will college cost in nine years? It’s a daunting thought and I try my best to avoid it. And think I must I live on Fantasy Island when I say I’m going to retire at the same time I’m sending my two kids off to college. I honestly don’t know if early retirement will be able to happen at the same time. (Loans are not an option – personal parenting goals.)
College is a wild card. Or maybe I want it to be a wild card because all my (limited) research shows tuition will about double and that’s scary. The Vanguard college tuition calculator provides a pretty basic estimate of anticipated costs. Low-ball estimate is that a four-year college education at $100,000 today will increase to $167,000 in nine years.
529s: Today’s standard for college savings. Put it in post-tax, pull it out for education-related expenses without penalty. We have two, established by the kids’ grandfather when they were babies. Our nine-year-old has ~$12k today. We contribute $100/mo. At this savings rate, using a compound interest calculator, this will be almost $40k in 9 years. Maybe enough for one year if we stay at the same contribution rate.
We increased our college savings another $100/mo into each of our Roth IRAs. (No, we’re not at the point where we can max these out yet.) Withdrawing from a Roth prior to age 59.5 carries penalties, unless for a qualifying reason. Your child’s education is one.
Community College Transfer: I really like the idea of saving on tuition by going for two years at a community college then transferring to a four-year, but there seem to be more drawbacks than positives. Maybe this will shift to being a more common practice in the future, but I can’t plan on that.
Change: It’s hard. Going to college is hard. And a lot of Community College students don’t transfer to 4-year institutions.
Social: You learn so much about life and living when you’re living away from home, at college. It’s like a safe bubble (ok, that depends…) where you and your peers are figuring it out together.
Having recently moved from Seattle, I’m wondering … perhaps moving back to enjoy the mountains and sound, while taking advantage of UW’s Dual Enrollment would be worth considering. (Reason #458 we should move to Seattle.)
Scholarships? This Washington Post article is old, but it probably still stands close to the truth today: 19% of high GPA students receive academic scholarships and 0.7% receive athletic scholarships. This would be really great, but I can’t count on it.
Real Estate: Our obvious choice and we’re so so so thankful we have it, because I really don’t think we could achieve the savings rate we’d need to pay for college without loans. We have two rental homes in the crazy Seattle market. We’ve owned one, our ex-primary, for 11 years and the other for four years. Either of them would more than pay for both kids to go to college at today’s average tuition rates. We can’t predict what they’ll be worth in nine years. I don’t have a crystal ball. But this is what will pay for college and enable us to retire around the same time.
Filed our taxes via H&R Block and got fat federal and state returns (this probably means we need to adjust deductions)
Took federal return to pay off one card! WHOO!
Going for the Gold!
No one wants to stop spending. I haven’t found too many like-minded friends in my circle of friends. A co-worker is enthusiastically into FI, so it’s pretty awesome to share learnings and successes with each other. But among my close friends and family, it’s not spreading. I’m not exactly pushing it either. You have to be interested in learning and open to change. And breaking away from our consumer-driven culture isn’t something a lot people are interested in. People like to shop.
But, let’s pretend.
At this point, if asked, I would recommend the following books:
We’re nine months in and these are all common names to me now. There’s such a wealth of free information foranyone that wants it. It’s like we all have the ability to stretch this super muscle, but we don’t. It doesn’t have to be complicated, there are several simple changes you can make that make a huge impact. Anyone can do it!
Building on the strong foundation we set in 2017, here are our goals for 2018:
#1: Debt reduction. We made some great strides in 2017 by simply organizing our finances and recognizing that we need to be more aggressive and focused on debt reduction. This will, of course, continue …
#2: Travel. We haven’t traveled much lately and we NEED to! This is a no brainer: open a Chase rewards card. Actually, I already got mine and my husband will get his soon. We went with the Chase Sapphire. I’m not sure yet if we’ll get as aggressive as the chase gauntlet just yet. We’re thinking a family vacation to the Bahamas … perhaps that’s because it’s freezing cold right now.
#3: Max out all pre-tax contributions (401k, HSA, FSA).
#4: Increase college savings. Keep 529s at $100 per month and contribute an additional $100 per month into another, separate investment account or Roth IRA for each child.
#5: Save (more) on wireless phone bills. Change DH from Verizon to a Monthly Shared plan with Total Wireless for $60 per month, saving $67 per month. That’s over $800 per year. Cha-ching!
The debt reduction is the biggest nut: credit cards, HELOC, two car loans and three mortgages. It’s daunting, but it’s there and we’re going to make it disappear. POOF!
We started on this journey in May 2017 and I think that in our first eight months, we accomplished a lot. It wasn’t too much of a stretch for us: we know we need to save, but learning from the FI community, we realized that being more aggressive about both decreasing debt and saving more will enable us to stop working our traditional office jobs in about 10 years (at age 54) … we hope. College for two kids is such a wild card. And I don’t even want to think about healthcare.
Our first eight months on the path to FIRE looked like this:
Transferred both our Wells Fargo IRAs, rolled over prior employer 401k and an old pension into Vanguard IRAs, focusing on consolidating into VTSAX
Continued to contribute $100/month into each of two 529s
Maxed out pre-tax HSA and Dependent Care FSA
Sold high expense ratio funds to purchase VTSAX (still working on this because there’s a charge of $50 when selling more than one non-Vanguard fund within 60 days)
Successful job arbitrage saving city wage tax, commuting costs and time, plus a bonus and salary increase
Tracked spending with Every Dollar; this was really helpful to understand where and when our money was going and helped us get started. I feel like we’ve got our finger on the pulse of this now and I’m not tracking every dollar.
I’m addicted to the Personal Capital app. I love seeing our money grow and debt shrink and it also provides a spending analysis that has replaced Every Dollar for me, but it’s not as robust in that department. I was hesitant to provide all my account info and logins to a third party, but their superman encryption convinced me it was safe.
Switched insurance providers for primary house, two rental houses and two cars: saving over $600/year.
Increased rent in both rental homes; this wasn’t by design as much as strongly recommended by our property management company due to market trends in one and tenant turnover in another.
Whew! I’m proud of this. I wish we started 10 years ago, but there’s no looking back, just moving forward. We still have a long way to go: we have goals and we can see how we’ll get there. Here’s to 2018!