By: Laura Walton AFC®
In recent blogs I’ve discussed the FIRE movement (Financial Independence Retire Early) and the potential pitfalls of early retirement. Left unaddressed is how to pull it off – does it take a big income? or monk-like frugality?? Here’s how one 3rd DecadeTM graduate is knocking it out of the park.
For simplicity’s sake, I’ll call the client Susan. This, our second meeting, was thirteen months after our first. As usual, I started the meeting by updating Susan’s net worth statement – that’s where we see the magic happen – assets up, debt down, net worth increased. In this case, her net worth had increased by $29k or a little over $2k per month. That’s impressive in itself but especially so taken against her gross income of $53k. So, I had to ask, how did you make this happen? Here’s her secret sauce:
- She plans 5 years out with emphasis on the coming year.
- She knows exactly how much she will save next month, every month. (Note: As Warren Buffet says, “Save first and spend what’s leftover.”)
- She’s always been careful with money. She uses a very detailed excel spreadsheet to track her spending. She tracks every dollar, even what she spends on, for example, a coffee out. (Note: How many times have I held up a Starbucks cup in a presentation and said that a $5/day Starbucks habit is what’s in the way of you and a million dollars in retirement?)
- She doesn’t eat out much and makes it a special occasion when she does.
- She distributes her paycheck to her goals as soon as it hits her account.
- She shops at Goodwill, etc. (Note: A lot of 3rd Decade participants shop at thrift stores which are not only budget friendly but a great way to recycle our planet’s resources.)
- She maxes out her 401k contribution ($18,500 for 2018; $19,000 for 2019). (Note: How many people do you know who max out their 401k?)
- Wait, there’s more. She maxes out her Roth IRA ($5,500 for 2018; $6,000 for 2019). (Note: How many people do you know who max out BOTH their 401k and Roth IRA?)
- She bought a house when she moved to Tucson knowing she’d be here at least 5 years. The $739/month payment is well within her means and its central location and three bedrooms gives her the flexibility to take in a roommate if needed or to rent it when she moves if she chooses not to sell.
- She’s made a conscious effort to have less stuff a la the minimalist movement. She has requested “no gifts” from family and friends which helps to set their expectations as well.
- Her friends share her goals and mindset – they’re supportive.
- When I asked “do you feel deprived?” or “do you get budget weary?” she said, “No! Because I’m working on a plan towards goals!” She’s clearly excited about her plan and her ability to execute it.
- What is her plan? To retire at 55. Our financial forecast shows that’s imminently possible.
- What’s made the difference? As I said, she’s always been good with money and works to educate herself on the subject. For example, she knew that the retirement plan contribution limits had been increased for 2019. And, not to be self-serving, she made a point of saying that the 3rd DecadeTM program was what kicked her into high gear. It gave her the additional bit of knowledge and confidence to plan for FIRE.
Note: Susan has made achieving her plan a priority. Her commitment means living on less than half of her income. Many of us with higher incomes struggle to save far less. It’s clearly a matter of choice and conviction. To loosely quote Henry Ford, “If you think you can, you can.” By the way, she’s getting a 20% raise – a new goal? retire at 50??