Today I have a guest post from my friend, Rob, who blogs at Mustard Seed Money. Rob is an accountant for the federal government with a passion for all things personal finance. He created the website Mustard Seed Money and the course Reaching FIRE, both of which emphasize sound financial education and advice.
If you haven’t heard of the “FIRE” movement, it stands for “Financial Independence Retire Early”. Basically, it’s a group within the personal finance community that is breaking the traditional “9-5 until you’re 65” mentality and showing that money can buy freedom. While my goal isn’t personally to retire super early, my money philosophies align well with those pursuing FIRE and most of my favorite blogs are part of this amazing community!
Within the next three years, I should be able to reach FIRE. That means by the age of 40, I should have the financial ability to never work again. If you told me that I could retire in my 40’s back when I first started working, I would have told you that you were nuts. I fully expected to work well into my 60’s, or even longer than that.
How Am I So Close to FIRE?
Firstly, I made a concerted effort to always eschew debt.
Growing up, my parents taught me to hate debt. They wouldn’t carry credit card debt. The only debt that they had was their mortgage. Each month, they were laser-focused on paying their mortgage down until finally, they paid it off. At the time, I couldn’t understand why they cared so much about being debt-free. I was also probably too focused on the newest Nintendo game, and when they would tell me it wasn’t in the budget, I was mad.
Why would they put money towards a mortgage when they could have allocated those funds towards buying me the latest video games? You don’t have to tell me how silly and juvenile I was at the time. Now that I’m older (and a little wiser), I understand their priorities.
Getting a Mortgage
When I first bought my house in 2004, I was on top of the world. I was proud to be a homeowner at the age of 23. I didn’t care that I needed to take out a huge mortgage in order to gain that status.
However, over time, I began to hate that mortgage. I started to understand my parents’ negative sentiments towards theirs. Having such a large mortgage required that I live with at least three roommates at a time, as I couldn’t afford to pay the whole mortgage amount on my own.
At first, I didn’t mind the roommate situation because I was living with guys that I knew and were compatible with my stage of life. However, over time, those guys moved on. In order to stay on top of my mortgage bill, I had to find random roommates.
Unfortunately, some of those roommates brought drama into the house and were not great fits. But, I couldn’t get rid of them because I needed their money. That’s when I became laser-focused on paying off my mortgage debt. I knew that if I didn’t become serious with it, that there was a chance I would need to live with roommates for the rest of my life. I wasn’t sure what my future wife would think about that. 🙂
Fortunately, I began to prioritize my spending and reduce my expenses. I scrutinized my budget to see what I could eliminate or decrease. My flip phone sufficed when everyone else was buying smartphones. I tried to decrease the number of times I ate out (which for a bachelor was not always easy!). Anyway that I could save a buck, I did.
Upping My Income
On top of that, I looked for ways to increase my paycheck. I took on the hardest projects at work and readily did any grunt work involved. Over time, I was rewarded with promotions and in turn, increases in my salary.
I then took any excess money at the end of each month and started to dump that cash into the mortgage payment. In eight (long) years, I was able to pay off my mortgage and become completely debt-free.
How easy was paying off my mortgage?
Not very easy. Would I change anything that I did? No way. I learned a ton along the way. I developed a strong work ethic and learned how to be patient, especially in less than ideal situations.
Planning for the Future
After I paid off my mortgage, I focused on maxing out my retirement accounts.
Before I paid off my mortgage I always contributed up to the match in my 401(k) and then would max out my Roth IRA. To be honest, the only reason that I maxed out my Roth IRA was that my Dad told me it was a smart idea. If he didn’t emphasize that I should do it, I probably would have wasted that money in another area.
When I became debt-free, I began to maximize my contributions to both my Roth IRA and my 401(k). It wasn’t too tough since I simply rerouted the money that would have gone towards my mortgage into my retirement accounts.
I have been maxing out my retirement contributions for 6 years. As a result, my investments have risen by 9-fold. Of course, I attribute most of this to the great bull market that we’ve had since 2009. However, if I hadn’t maximized my contributions, I would have never gotten to where I am today.
Honestly, when I look back, I am still shocked at how fast my account has grown. What may seem like small investments in the beginning, have made for monster gains in later years.
What if I had maxed out my 401(k) and Roth IRA all along, instead of paying off my mortgage. Would I be further along? I did the math recently, and yes, I would be further along. Although, I would not have been able to take the chances that I have at work, had I not paid off my mortgage.
In the years since I paid off my mortgage, I have taken greater risks at work. I gained a newfound confidence once my mortgage was no more. As a result, I took on harder projects, with a greater chance of failure. Luckily, I haven’t failed yet. Even better, I have received many promotions and raises as a result. If I had kept my mortgage, I would have continued to play it safe and probably would have topped out at work. Instead, I took more chances, and that has benefited me tremendously.
Upping My Savings
Finally, in order to reach FIRE that much faster, I ramped up my savings rate to 65%.
Don’t get me wrong– I really like my job working as an accountant for the government, but my true passion is financial education. It’s why I created my Reaching FIRE course and why my wife jokes around that they only time I become an extrovert is when I’m talking about personal finance to people.
In order to reach our retirement goals, I knew that we would need to increase our savings rates. For the past three years, my wife and I have been able to live off of just 35% of our take-home pay, while plowing the remaining 65% of our take-home pay into savings and investments for the future.
Is it easy? Not all the time. But, we decided that there are certain areas where we can sacrifice in order to have a more comfortable future.
Reaching A 65% Savings Rate
We are huge proponents of buying (gently) used items. We buy used cars. Our preference is 5+ years, which minimizes the amount of car depreciation. We buy used baby items from thrift stores or Craigslist. Heck, we even utilize Craigslist for free items as well. A neighbor of ours recently cleaned out their garage and threw away two double strollers along with two Power Wheels vehicles. They left them on the curb with a “free” sign. Our whole basement is filled with these types of finds.
On top of that, my wife is an incredible shopper. Each week, she goes through the grocery store circulars and highlights all of the best-priced sale items and arranges her week so that she can benefit from each of the stores best deals. When I was single, my grocery bill used to cost me $500 per month, by myself. Since we’ve been married, our grocery bill has been reduced to $300 a month, and that is with her and our two kiddos. I also have to mention that my wife eats really healthy. Her idea of a sugary snack is eating dates. She buys high-quality, healthy food. So while we spend less on food, we do not scrimp on the quality.
While my points may not be revolutionary, they highlight the simple principle of “spend less than you earn and invest the difference”. What’s right for me, may not be right for you. That’s why personal finance is so wonderful. It’s personal for a reason.