FIRE Progress Report – November 2018

Let’s dive right into the November 2018 FIRE progress report.

The Numbers

20.9111%

This is our invested assets/target number. Our invested assets span across a variety of investment vehicles such as 401k, HSA, IRA, Roth IRA, ESPP (Employee Stock Purchase Program) and standard taxable mutual funds.

117

The number of months until my 45th birthday and our finish date.

115.92

The number of expected months until we reach our target number based on our current expected monthly contributions, assuming a 10% annual return.

Where We Saved This Month

401k – $1754 total (employee and employer)

HSA – $420

Roth IRA – $900

ESPP – This will be starting in the next month.

Taxable Investments – This will start after we’ve built up an extra cushion in our savings account, probably closer to the end of the year.

What’s Happened and What’s Happening

This last month saw a hit to the markets which caused an increase to the number of months until we reach our goal and a decrease to our percent-to-goal. On the bright side, I decided to sign up for my employer’s employee stock purchase program (ESPP).

For 6 months, they’ll take a portion of my paycheck and then at the end of the 6 months, they’ll look back at the stock price at the beginning and the end of the six months. Whichever one is lower, they’ll buy it at that price and take a 15% discount on top of that. When the stock is purchased, I’ll sell it shortly afterwards and move the money into a Vanguard fund. That should give me at a least a 15% return minus taxes.

In addition, the side business has done very well and has allowed us to get much closer to building the savings account cushion back up.

FIRE Progress Report – October 2018

Let’s dive right into the October 2018 FIRE progress report.

The Numbers

22.3716%

This is our invested assets/target number. Our invested assets span across a variety of investment vehicles such as 401k, HSA, IRA, Roth IRA, and standard taxable mutual funds.

118

The number of months until my 45th birthday and our finish date.

112.38

The number of expected months until we reach our target number based on our current expected monthly contributions, assuming a 10% annual return.

Where We Saved This Month

401k – $1754 total (employee and employer)

HSA – $420

Roth IRA – This will show up on November’s report since the transactions will occur in October.

Taxable Investments – This will start after we’ve built up an extra cushion in our savings account, probably closer to the end of the year.

What’s Happened and What’s Happening

Since we paid off the house, we’ve been working on building our savings account up a bit. We didn’t have to touch our emergency fund to pay it off, but did pull some money from savings. It’s been slow going, but should be done by the end of the year even with our increased investing.

Recently, we got a nail in the tire of our Toyota Prius that wasn’t repairable. The two places we would normally go didn’t have the same tire in stock and weren’t sure they could get it. Our Costco membership came to the rescue as they had the same one in stock and could install it right then. Since the tires had 44k miles on them, we replaced a pair of them.

I learned about a couple of other Costco membership discounts.

  • We were already getting a good price on the tires, but to make the deal even better, they include a road hazard warranty, which if I recall correctly, normally costs around $16-20 per tire at other places.
  • They suggested I get an alignment, but they don’t do them there. However, I was given a card with a website where I could enter in my membership number and zip code to get a 15% off coupon to few different places that offer auto services. One of them was the place we normally go for oil changes. From now on, we’ll be getting 15% off of oil changes, which adds even more to the membership savings!

All that to say, it’s great to be able to use things that we already have to save extra money, but a disappointment that we had this unexpected expense pop up that will slow down our savings.

FIRE Progress Report – September 2018

I’ll be honest, I’m not consistent about posting on a regular basis, but I’m going to try to post a monthly report about our progress towards FIRE. It will be short and to the point without a lot of fluff. I’ll also give a tad bit of an update on the different things we’ve got going on and changes that we’ve made along the journey.

We’ve got to have a starting point. I’m a numbers guy, so let’s dive right in.

The Numbers

22.0113%

This is our invested assets/target number. Our invested assets span across a variety of investment vehicles such as 401k, HSA, IRA, Roth IRA, and standard taxable mutual funds.

119

The number of months until my 45th birthday and our finish date.

113.16

The number of expected months until we reach our target number based on our current expected monthly contributions, assuming a 10% annual return.

Where We Saved This Month

401k – $2629 total (employee and employer)

HSA – $610

Next month we’ll start putting money into the Roth IRA again.

Mortgage done, what’s next? FIRE!

While it has felt like a long, slow journey to get the mortgage paid off, by most people’s standard, we’ve probably paid the mortgage off quickly. The actual total time was about 11 years and 4 months from beginning to end.

The question is…

What’s next?

First, FIRE stands for Financial Independence Retire Early. Some people focus on doing something that provides them an income where they have independence to do what they want when they want – Financial Independence. Others focus on not having to do anything at all if they don’t want to and their investments provide the necessary income – Retire Early.

I’m more focused on the Retire Early side of things, while using Financial Independence to fund splurges in lifestyle once we’ve hit our number. That’s why I’ve continued to grow the side business and will continue to do so to save more and have something to fund splurges in the future.

How you get to FIRE is essentially comprised of two basic principles.

  • Hack your spending to spend less money and develop a lifestyle you enjoy.
  • Save as much as you can (which also contributes to the first one because if you’re saving it you can’t spend it).

Once you’ve got enough money saved up to fund your lifestyle, you’ve achieved FIRE.

How long do I have?

The plan is to save consistently for the next 10 years until my 45th birthday, without making us feel like paupers. What that means is that we’re still planning on taking regular family vacations, but we won’t drive the latest cars or live in the size of house we technically could “afford”. (Our 2006 Prius almost has 230k miles on it and is running great.)

I’m tracking our investment savings each month in a spreadsheet and running calculations that give me an indication of where we should be at the end of the 10 years. If you’re interested in a copy of it for your own use, please let me know.

While I’m not yet comfortable sharing our final number, I’ll try to share a progress report each month to inform you on our progress.  This will let you know how we’re tracking towards our final number.

Why do all of this?

The answer is easy – time. Of all the things in your life, time is the one thing you have a limited amount of. You can’t buy more of it or manufacture it. Money comes and go, but time is a finite resource. No matter how you invest it, your returns will rarely ever come back in the form of more time. By saving for FIRE, I’m buying more time to do what I want.

I do want to clear one thing up that might not be immediately obvious. We’re a normal family that are just like most of you reading us. Right now, my wife stays at home, and I make a good salary as a software engineer. We’ve got 2 kids in school and have an average house. We could buy a bigger house or drive newer cars, but we value buying time versus those things. If we can do it, you can do it.

Early Retirement – What does it mean to you?

I think many people fall into two groups when they think of an “early retirement lifestyle”.

One group thinks that since you’re not going to save for the same amount of time as everyone else (30-40+ years), you’re likely going to retire with very little. If you retire with very little, you’re going to live a very meager existence so you don’t burn through all of your savings quickly.

The other group may think it’s possible to save enough to have a nice retirement in a shorter time period, but that means you’re going to have to live an incredibly frugal life now. Personally, I think living frugally is what allows you to have margin in your life for the things you want, even if that thing you may want is early retirement.

I don’t believe that saving for early retirement needs to be either of the extremes above. Life is short, and anything can happen between now and early retirement, so you need to be able to enjoy life now as well as in the future. An important balance needs to be struck so chaos doesn’t rule.

Many of the topics I’ve written about up to this point have been about how to save money on a variety of things such as internet, cell phones, and even a trip to Disney World. If you’ve followed any of the advice, you’ve hopefully got some extra financial margin in your life. If you haven’t decided what to do with it yet maybe now is the time to go on this journey with me.

Perhaps you’re in a place where you really can’t imagine working for the next 20, 30, or 40 years and you question whether you’ll have enough to actually retire in the end. If that’s the case, than exploring this topic may help you realize you can make plan and live it out for a better future.

There may be some of you who aren’t in either of those two categories, and if that’s the case, that’s okay too. Let me know in the comments below what kinds of questions or skepticism you have. I’ve read stories in the past of people “retiring” by the age of 30 and figured that their situation was different from mine and that’s why they were able to pull it off. I’m 33 now, so I’ve already passed the age that some of these people were able to retire by. It’s never too late to step on the gas pedal and accelerate full speed into the future that we want. No one is going to do it for us!

Photo by Tax Credits

Early Retirement? Why Not!

Over the past several months, I’ve been fascinated by the idea of early retirement. Just the term early retirement can bring up a few different questions.

What is early?

I consider early to be anytime before when most people would retire. A quick search on the internet brought up a US News article where they surveyed 5100 employees and only 2 percent expected to retire before the age of 55. So we could consider anything before the age of 55 to be “early”.

What is retirement?

Well, that’s a different thing to different people. I view it as no longer having to do the 8-5 anymore. Essentially, financial freedom to do what I want when I want. It’s the point where investments and assets are making enough money to cover our everyday living expenses. At that point, we could do what we want, when we want without living like paupers.

What’s next?

I’ve learned a bit and plan on reading more on the topic from different sources. One authority on the topic is Mr. Money Mustache. Another that my wife found recently is The Money Habit.

Do you know of any authorities in early retirement? Is it a dream of yours to one day quit your 8-5? Let me know in the comments below. I plan on writing more about this topic as I learn more and develop a plan of my own.

It’s also the time of year to start planning what you want to do next year. Let me know what you’ve got planned in the comments concerning your financial future.

What are you going to do with your tax refund?

Taxes

According to the IRS, the average tax refund last year was about $2800. That’s a lot of money. Let’s look at that a couple different ways.

$2800 is the same as:

  • $233 a month
  • $116 if you’re paid twice a month
  • $107 if you’re paid bi-weekly
  • $53 if you’re paid weekly

That would be a pretty nice raise if you got that money in each of your paychecks. We’ll talk more about that in a future post. For now, let’s look at some ideas on how to use this year’s tax refund.

It’s always nice to get a big pile of money unexpectedly. It’s sad to find out after a while that it disappeared and you’ve got nothing to show for it. Below are some ideas on how you might use your tax refund this year.

  • Pay off some debt. Since you’re probably paying interest on any debt that you have, paying it off makes your tax refund that much more valuable by saving you interest every month.
  • Start or build an emergency fund. Emergency funds are far from exciting, but on the bright side, once you’ve got one, unexpected events aren’t such a crisis.
  • Put it in an IRA for retirement. You can start the year by cutting your tax bill for the next year by putting your refund right into an IRA. Whatever you contribute to a traditional IRA can be a deduction if you itemize your taxes.
  • Start a 529 college fund for your kids. Depending on where you live and in which state you start a 529 college savings plan, you can get a lot of great benefits that a savings account won’t provide.
  • Buy something big you’ve been looking at. If you’ve been planning to buy something like a new computer, furniture, or something else that isn’t exactly “cheap”, using your tax refund can get you that item that much faster. Plus, if you’ve saved money for that special item you can use it for something else now!
  • Plan a vacation. It may not sound like the most responsible thing to do, but paying cash for a vacation is better than putting it on a credit card.
  • Start a business. I’m sure you didn’t expect to see that on the list. If you’ve ever thought about starting a business but have always used not having the money as an excuse, now’s your chance. It may be the catalyst to make a dream come true.

Don’t let your tax refund (or any unexpected dollars) slip away. Make a plan for it, even if the plan is to spend it frivolously. At least you’ll know where it went.

How do you plan on spending your tax refund? Post your ideas in the comments below.

Featured Image courtesy of Arvind Balaraman / FreeDigitalPhotos.net

What is a Roth IRA and why do I need one?

Beach

I’ve been pretty focused on finding products and services that will save you money in each post. However, this week, I wanted to take a break from the usual and discuss the Roth IRA. I’m sure everyone has heard of them by now, but perhaps you’ve still got some questions. Well hopefully I’ve come up with just about every question you might have and answered them below. If there is a question that I missed, please post it in the comments and I’ll get the answer for you as quickly as possible.

What is a Roth IRA?

A Roth IRA is a type of retirement account that usually contains one or more mutual funds.

What makes a Roth IRA special?

When you put money into a Roth IRA, you put add to it after tax money, which means the money that you take home in your paycheck. The special part about this is that it grows TAX FREE since you used after tax money to fund it.

Grows tax free? What does that mean?

It means that if you put in $1000 into your Roth IRA and it grows over several years to say $50,000, you can withdrawal money out at retirement and not pay taxes on any of it, including the growth. If you had $50,000 in a 401k and decided to pull it all out at once, it would turn into something like $35,000-40,000 after taxes are paid to the IRS. Plus, who knows what tax rates will be like in the future. If they go up a lot, then you would get even less from your 401k when you make withdrawals.

Can I contribute to a Roth IRA?

As long as you have a job and report your earning on your taxes, you should be able to contribute to a Roth IRA. There are income limits however. If you are married filing jointly and make $178k or more, or you’re single and make $112k or more, you should check with a professional to make sure that you can contribute to a Roth IRA.

When can I take money out of my Roth IRA if I start one?

When you turn 59 1/2 you can usually start withdrawing money from your Roth IRA as long as you’ve been putting money in for at least 5 years. You can take your contributions out at any time before 59 1/2, but if you touch the earnings or growth, you’ll be paying a penalty. It’s best to leave it alone if at all possible. For example, if you put in $5500 each year for five years and then one year you decide that you want $2000. You won’t be able to put in $7500 the next year to try to repay the amount you took out.

But I’m a stay at home mom, can I still open a Roth IRA?

As long as your spouse is working, you can open a spousal Roth IRA and contributions can be made on your behalf up to the limit.

How much can I contribute to a Roth IRA?

The limit is currently $5500 ($6500 if you’re 50 or older) for you and your spouse, for a total of $11000. However, you can’t contribute more than you made so if by some chance you made less than those amounts, that would be your cap. Chances are if you make less than that, you’ve got bigger concerns than contributing to a Roth IRA.

Can I start a Roth IRA for my child?

In most cases, the answer is no, unless they made money and you file a tax return for them. So if you’ve got a child actor on your hands, then you might as well start a Roth IRA early for them to maximize the savings.

What does it mean to put money into a Roth IRA?

When you invest in Roth IRA, what you’re really doing is putting money into an investment, such as a mutual fund under a Roth IRA umbrella. The Roth IRA umbrella is what determines how the IRS treats it.

I hope this has been helpful. Before opening a Roth IRA, I would suggest speaking with an investment professional to make sure that you invest in mutual funds that meet your desired goals.

Featured Image courtesy of Vichaya Kiatying-Angsulee / FreeDigitalPhotos.net